When I look at companies to evaluate, one of the first things I do is examine their long-term charts. Companies that have strong long-term positive trends immediately catch my interest. Take a look at Harley-Davidson, Inc. (NYSE/HDI), for instance. The maker of the “Harley,” a true American icon, has proven itself over time. Its long-term chart is what I like to see, in spite of some flatness over the last three years.
Debuting in an initial public offering in November 1987 at $0.43, the stock has split five times and is up an astounding 10,807% or 108 times in just under two decades. A $10,000 investment in November 1987 would be worth a tidy $1.09 million based on last Wednesday’s close. Not too many stocks, especially outside of technology, have come close to matching a return such as this.
The company just had a strong third quarter and expects to report its 20th straight year of record revenue and earnings in the FY05. The valuation appears attractive, trading at 12.85x its FY06 EPS and a PEG of 0.98. So, is it time to buy? From 1987 to 2002, the long-term price trend was bullish, but it has been a different story since 2002, as the stock has traded in a sideways channel with decent support at $40.
After the selloff in the stock last April when it was trading over $60, Harley has failed to establish a clear trend. We saw a positive trend develop between a bottom in April and late July when the stock rallied to the mid-$50 range, but since then, the stock has slid.
If the stock can halt its decline and find support, there is potential for a short-term rally to materialize. The stock is oversold and could see some buying support. The recent bounce back close to its 20-day moving average is positive, but whether it can hold is another question.
The trend line is treading lower and the Bollinger Bands have a marked downward bias. Should the stock hold at $44, look for a potential double bottom to form and a bounce back to the 50-day moving average at $49.55 followed by the 200-day moving average at $53.30. The downside risk if the stock cannot hold is $42 and $35, so you need to make sure $44 is a valid support level.