Riding Harley-Davidson, Inc. (HOG)’s Customer Loyalty All the Way to the Bank

What About Japan?

Most bikers and investors would agree that the strongest non-US competition to Harley-Davidson, Inc. (NYSE:HOG) is Honda Motor Co Ltd (ADR) (NYSE:HMC).  Honda has a “Harley-copy” called the Goldwing, which appeals to riders who value the Honda reputation for quality and reliability.  Motorcycles represent only a portion of this monstrous company’s revenues; Honda Motor Company is the world’s fifth largest auto maker, as well as the world’s first largest motorcycle maker. Revenues are up 24% in North America, and are being bolstered further by the falling yen price.

Can we expect Honda to take advantage of Harley-Davidson, Inc. (NYSE:HOG)’s perceived demographic crisis?  Of course! Not only do we have the Goldwing targeted to the baby boomers moving to the magical age of 60 where safety performance trumps the “coolness” factor, but Harley also makes a wide variety of “crotch-rockets” clearly aimed to the younger set where the need for speed rules.  Harley has had only marginal success in this area with the smaller Sportster model. It would make sense for any Harley investor to pay careful attention to new offerings by Honda that play in Harley’s traditional markets. It also makes sense to consider investing in Honda too – it is a solid blue chip that provides a 2.2% dividend yield with good price growth (12.37% one year change). The company is extremely well run, with low debt and respectable (>30%) gross margins. Definitely a buy and hold type stock.

In summary, Harley-Davidson, Inc. (NYSE:HOG) is selling to an aging marketplace. The leadership of Harley recognizes this and has a sold strategy for continued growth despite these challenges. Competitors like Victory and Honda (and to a lesser extent, Yamaha and Kawasaki) are waiting in the wings to take some of Harley’s leftovers. This Foolish blogger believes the market is overreacting to this threat, and the dip in Harley’s price (which hasn’t bottomed yet) provides a great opportunity for the Foolish to pick up some shares of this iconic American company and hold it for the long term.

The article Riding Harley-Davidson’s Customer Loyalty All the Way to the Bank originally appeared on Fool.com and is written by Brenda Johnson.

Brenda Johnson has no position in any stocks mentioned. The Motley Fool recommends Polaris Industries (NYSE:PII). Brenda 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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