An American Icon With a Positive Trend
Monday, October 17th, 2005
By George Leong, B.Comm. for Profit Confidential
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.
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
