You Can Make Winter Profitable -- If You Know Where To Look

Jimmy Butts's picture

Thursday, January 7, 2016 - 12:30pm

by Jimmy Butts

The weather phenomenon El Nino is bringing the much need moisture to the west, where places like California are suffering from a four-year drought. And the early signs of snow pleased many snow enthusiasts, while allowing many ski resorts to open early.
 
Colder temperatures also bring the possibility of thicker profits for many companies that rely heavily on seasonal trends. Companies like Douglas Dynamics (NYSE: PLOW) which supplies snow and ice removal equipment and Arctic Cat (Nasdaq: ACAT) which sells all-terrain vehicles, notably its snowmobile lineup, lean heavily on the hope for a good winter to boost sales.

But there are two companies that stand above the rest when it comes to finding the best stocks to take advantage of winter.

Winter Basics
Before you can take advantage of all that winter offers you must first be prepared. Having the proper outerwear can be the difference between a great time and a miserable time when either out on the mountain or walking the ski village in Vail, Colorado.

And if you're looking for some great gear then 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. 

When Columbia released figures for its third quarter results in October, it announced a record $767 million net sales figure, a nearly 14% increase from the same quarter last year, and net income jumped 39% to a record $91 million. What's more, management estimates that it will report year-end net income to be between $165 million and $169 million, which would be a 25% increase at the minimum over the $132 million it reported in 2014.

The outdoor apparel company is currently trading around 21 times earnings, which is slightly below its five-year average of 23. While I don't believe that Columbia is a value play, I do think it's a good way to take advantage of consumers gearing up for winter -- and a stock that could pocket you a nice 15%-to-20% return in the next few months.

A Massive Winter Wonderland 
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, ice skating, hitting the spa, shopping or dining in at one of the 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:

As you can see it owns ski resorts in arguably some of the top destinations in the country -- Colorado, Utah and California. In Utah it recently connected Park City and the Canyons via an interconnected gondola to create the largest ski area in the United States. In June 2015 it broadened its portfolio by acquiring the largest ski resort in Australia, called Perisher.
 
Management has done a good job deploying cash. Its return on invested capital is the best it's been in more than 10 years at 9.8%. And for the company's fiscal year, which ended July 31, 2015 it generated nearly $180 million in free cash flow, a 40% increase over 2014.
 
Not only has Vail Mountain Resorts done a good job with its capital, it's also rewarded shareholders. In 2011 it dished out $0.45 in dividends for the year and this past year it paid shareholders $2.49 per share, that's a 453% increase, good for about a 2% yield.

With El Nino projected to be the strongest in 18 years according to the weather service these two stocks should see a nice boost in share price.

Risks to Consider: These two stocks are consumer discretionary companies, meaning if the economy takes a turn for the worse consumers will likely cut luxuries such as new ski gear and vacations first, which will dramatically impact the returns for these stocks. The stock market has seen wild fluctuations lately and if there's a broad market selloff these stocks will go down with everything else.

Action to Take: These are two solid companies to ride the momentum El Nino is bringing with it. I would look to take quick profits from these seasonal stocks in the next few months. With the recent market volatility look to get in on a dip and watch your stop's closely.

Editor's Note: A small group of investors tuning out the static of the financial media have been quietly winning on 83% of their trades. In fact, by quieting the pundits' hype, these folks have banked up to 510% annualized gains in just 12 minutes of "work" each month. To discover why less research can actually generate more gains, click here now.

Jimmy Butts does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.