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Old 08-05-2004, 11:39 AM   #1
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Investor’s Business Daily
RV Sales Roar But Rising Rates May Curb This
Published: 8/4/2004

Brief summary:
This article, which takes a skeptical look at RV company Thor Industries (THO), is pretty much summed up by this quote by Craig Kennison, a Robert W. Baird analyst: "Everyone knows 2004 is going to be a great year. The question is how strong will 2005 be? We'll have higher interest rates and difficult comps in 2005. That's the most prominent issue today." THO is the top seller of towable RVs and "Its best-known brand is the Airstream and its signature 'silver bullet' look." Sales have been booming in 2004 but looking out to 2005 and beyond is where problems could potentially pop up. The main problem will be an increase in interest rates as "… history says rising rates do scare off some buyers when higher rates persist as they're expected to next year." The final weak spot could be THO's bus business. "This makes up 10% of revenue. A down economy meant bus buyers — car rental outfits, public bus systems and airport shuttles — all cut spending."

Contrarian Takeaway:
Without a doubt, this article brings up some very relevant problems for THO over the next few years and potential investors should strongly consider these problems before buying. But one thing that isn't new for THO is pessimism. From our contrarian point of view, the strongest indicators are optimism toward underperformers and pessimism toward strong performers. THO has gained four percent year-to-date and 33 percent over the past 12 months. Given this impressive price action, to see pessimism still present could be a sign of future gains yet to come. The company's Schaeffer's put/call open interest ratio (SOIR) has been trending higher of late, indicating increasing skepticism among short-term options players. Take note that this is the group that is most commonly wrong in option speculation. THO also has a substantial amount of short positions against it. From our contrarian point of view, this could lead to a substantial short-covering rally should the company announce any positive news. Finally, only three analysts cover the stock. This dearth of coverage could lead to future upgrades as more analysts cover the security. In conclusion, should the shares continue to outperform, they should have some serious fuel for future gains thanks to all of the negative sentiment they face.

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Old 08-05-2004, 03:57 PM   #2
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An Airstream executive put it quite simply to me. Jack, its all about interest rates and the price of gas. Those $50 a barrel prices forcasts are starting to scare me. While its a supply and demand issue I keep wondering about whether we are in a situation where we are being pushed to see how much we will dig down before we say "uncle". I'm having real problems when oil company profits are reported with 75% increases in earnings over last year.


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Old 08-05-2004, 04:21 PM   #3
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Originally Posted by jcanavera
While its a supply and demand issue I keep wondering about whether we are in a situation where we are being pushed to see how much we will dig down before we say "uncle". I'm having real problems when oil company profits are reported with 75% increases in earnings over last year.

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Old 08-05-2004, 04:38 PM   #4
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Despite these concerns TT wholesale shipments and dealer inventories continue to rise. Motorized shipments are rising as well but not as fast. The big RV industry show is this December. It will be interesting to see how dealers buy for 05. Most of my customers have seen increases over last year with many reporting record months or quarters.

While I am not even close to being an expert on this subject, IMHO, I believe given the pure numbers of new buyers entering RV buying age interest rates would need to increase significantly to curb the projected growth in the industry. Many dealers are telling us that the election will have more of an effect on their sales than any other factor. It's not so much the results but rather the uncertainty that puts off major luxury purchases such as RVs.

I guess I'd rather be an RV dealer with rising interest rates and fuel prices than a boat dealer.
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