I enjoy warm weather as much as the next person. But during the end of August when temperatures are hitting the high 90s and low 100s, I get tired of it... quickly. I yearn for the crisp mornings of fall and the changing of the leaves.
This year at home in the Northwest, however, it seems we skipped fall and jumped right into winter. We've already had snow and below-freezing temperatures. In fact, temperatures over the last month have been significantly below average.
Some might point towards El Nino or La Nina bringing about the onslaught of cold. But according to the National Weather Service, there's about an 85% chance that neither will be present this year. But regardless of the reasoning behind the weather events, the cold and snow reminds me to check in with some of my favorite "winter" stocks.
You see, colder temperatures also bring the possibility of thicker profits for many companies that rely heavily on seasonal trends. For instance, many utility companies that provide natural gas or electricity for folks can see a spike in profits if it's an exceptionally cold winter.
I've highlighted a few other companies that benefit from a cold and snowy winter in the past. For example, one company I mentioned, Arctic Cat, sells snowmobiles and all-terrain vehicles. After I wrote that piece in January 2016, the company was acquired by Textron (NYSE: TXT) a year later for a 41% premium. I also touched on Douglas Dynamics (NYSE: PLOW) which supplies snow and ice removal equipment, an outdoor apparel company, Columbia Sportswear (NYSE: COLM), and ski resort conglomerate Vail Resorts (NYSE: MTN).
Here's how they've performed since my original write-up...
And today, I'd like to dig into these names a little further to see which ones, if any, might be good buys right now.
Gearing Up For Winter
When it comes to great winter clothing and gear, look no further than the Portland, Oregon based Columbia Sportswear (Nasdaq: COLM). The outdoor apparel and equipment company operates under five brands: Columbia, Mountain Hardware, lifestyle brand PrAna and footwear brands Montrail and Sorel.
Columbia reported third-quarter results on October 30. Sales were $907 million, a 14% increase over the same period a year ago. That was the 12th consecutive quarter of growth. Net income of $119 million was also 19% higher. That gives the company a net margin of 13.2%, which, for perspective, is slightly better than Nike's (NYSE: NKE) net margin of 12.8%.
Despite topping analysts' expectations and posting record quarterly profit, shares of Columbia have slid since earnings. China and global recessionary headwinds are the likely culprits for the pullback in shares. But I believe it may be a good opportunity to capitalize. The stock is only trading for 2x sales, which is cheaper than the 3.6x multiple that Nike is commanding.
Its P/E multiple of 19 is well below its five-year average of 29.6. And one of my favorite metrics, Enterprise Value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization), shows a value of 12.2, which is also below its five-year average of 14.3.
And while not lofty by any means, the stock does sport a dividend yield of 1.1%. Perhaps more importantly is that management has focused on growing that dividend and returning more cash to shareholders. In the last five years, it's grown its dividend 76.1%. It's also returned nearly $400 million to shareholders in the form of dividends and share repurchases in the last three years.
This winter stock is once again poised to provide investors with solid returns.
Enjoy The 'Disneyland' Of Winter
If you've never experienced "the village life" at a major ski resort then I encourage you to drop everything and book a trip. You don't even have to be an avid skier, because the large resorts cater to everybody, offering entertainment for the entire family. With options such as sledding, snowmobile tours, ice skating, spas, shopping, or dining in at one of several fine restaurants, there's a little something for everyone.
And there's no company that offers a better experience than Vail Mountain Resorts (NYSE: MTN).
Vail Resorts owns and operates some of the most sought after ski destinations in the world. Here's a map of the resorts it owns in the United States and Australia:
Vail generated more than $2.2 billion in sales, $498 million in operating profit, and $442 million in free cash flow from these resorts during its fiscal 2019, which ended in July. The stock sports a solid 3% dividend yield and has increased its annual dividend 364.7% over the last five years.
Now, I won't say this stock is trading for dirt cheap, because it is not. Its P/E ratio of 32 by no means screams value play. But that multiple is lower than its historical five-year average of 43.
My last winter pick is Polaris, Inc. (NYSE: PII). The company is best known for its side-by-side, or "UTVs," and its snowmobiles. Its lineup of UTVs, including the popular Polaris RZR, is number one in market share in North America, and it holds the number two position in snowmobiles.
A strong winter should boost demand for the firm's snowmobile lineup. But Polaris is a lot more than just snowmobiles and off-road vehicles. The company's portfolio also includes motorcycles, including the famed Indian motorcycle (this segment is also number two in market share). Then it has a pontoon, cruiser and fishing boat division, as well as a number of accessories including garments and aftermarket parts for each of the aforementioned categories.
The company is on track to pull in more than $6.8 billion in sales this year and $340 million in free cash flow. Polaris is another shareholder-friendly pick, with a 2.4% dividend yield and dividend growth of 30.6% over the last five years.
Right now, the company sports a P/E ratio of just under 20, which is below its five-year average of 23.6. It's also only trading for 0.9 times sales, which is also below its historical five-year average.
Action To Take
Since my original write-up a few years ago, all three of my original winter picks have done well. COLM, MTN, and PLOW have rallied 90%, 114%, or 179%, respectively. That's an average of 127%, crushing the S&P 500's return over the same time period.
But don't think you've missed the boat. As I mentioned above, two of the three are trading at a slight discount. And thanks to the unpredictability of Mother Nature, any one of these stocks could take off for a ride.