The motorcycle of choice in emerging markets
Honda Motor Co Ltd (ADR) (NYSE:HMC) also makes a full line of off-road vehicles besides its Honda Motor Co Ltd (ADR) (NYSE:HMC) and Acura automobiles. Honda Motor Co Ltd (ADR) (NYSE:HMC) makes off-road motorcycles, street motorcycles, scooters, ATVs, and side-by-side vehicles. Honda Motor Co Ltd (ADR) (NYSE:HMC)’s principal business is automobiles where it gets 80% of its revenue. Motorcycles and ATVs account for 13.5% of revenue.
Last year, sales of motorcycles and ATV’s totaled 9.5 million on a global basis, an increase of 9.9% from the previous year. Sales in the U.S. rose 2% last year to 678,000 units. The strongest demand for this segment is in emerging markets such as Thailand, China and India, where motorcycles and scooters are the preferred choice of transportation.
Going forward, Honda’s auto business is its primary business and will have the most impact on the top and bottom lines. Among the big Japanese automakers, Honda has the most exposure to the North American market and will benefit from the economic recovery in the U.S. market.
In terms of motorcycles and ATVs, motorcycle growth is driven by demand in Asia. Honda has a wide selection of models that appeal to different markets. Honda has the size and scope in Asia that is unparalleled in the industry.
For a company of Honda’s size, it is quick to make changes. At its South Carolina plant, the company shuttered its watercraft division and transitioned to making the Pioneer side-by-side. Honda is investing $27 million over the next four years in the South Carolina plant to improve efficiencies. Since 1998, Honda has invested over $308 million in the plant and produced over 2 million ATVs.
Foolish assessment
Overall, I like the off-road segment as the industry is benefiting from strong tailwinds due to strong demand from its riders. My favorite would be Polaris because it’s the market leader and because of the potential with its Indian brand to mount a challenge to industry leader Harley-Davidson, Inc. (NYSE:HOG). My second favorite is Arctic Cat because of its small size and growth potential. Lastly, I like Honda motorcycles and its off-road vehicles, but it’s an auto company, which is a more competitive market.
Polaris and Arctic Cat are focused on their core markets and are looking to increase their respective market shares. For these reasons, Polaris and Arctic Cat are the companies to own.
The article Head Off-Road for a Good Buy originally appeared on Fool.com and is written by Mark Yagalla.
Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Polaris Industries. The Motley Fool owns shares of Arctic Cat. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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