Editor’s note: The following list comes from investing-advice organization The Motley Fool.
For many, owning a recreational vehicle — a motorhome, camp trailers, or truck camper — seems like an old-fashioned thing to do, a relic of the pre-Internet era.
But sales of these vehicles continue to be quite strong. According to the Recreation Vehicle Industry Association (RVIA), U.S. RV manufacturers shipped almost 286,000 of the vehicles in 2012, with a retail value of more than $10.8 billion.
For RV devotees, nothing else offers the same inviting combination of relaxed comfort and adventure. And for investors, there are some intriguing opportunities to be had in the space.
What is the recreational vehicle industry?
Simply put, the companies in this industry make and sell camp trailers, motorhomes, and truck campers — products that allow those traveling by road to cook and sleep in comfort.
Of course, the level of “comfort” varies wildly. At the simplest level, a “popup” trailer like privately held Jayco’s famous Jay Series line is essentially a tiny cabin on wheels. There are a couple of bunks, a small dinette table, and a simple kitchen space that includes a propane stove and a tiny sink. The Jay Series starts at a little over $13,500, but options can raise that price considerably.
At the other end of the scale are massive “land yachts,” giant motorhomes built on full-sized “Class A” truck foundations, and huge trailers that offer similar amenities. These vehicles often take their interior cues from luxury yachts, with leather upholstery, fine wood cabinetry, and a slew of high-end amenities.
The plushest Class A motorhomes can be very expensive, with prices rivaling a decent-sized home. Winnebago Industries‘ $380,000 Tour model is 42-feet long and includes amenities like fine wooden cabinets and trim, full-sized stainless-steel kitchen appliances, a 32-inch HDTV, and an electric fireplace. The company plans an even more luxurious — and expensive — Grand Tour model in 2015. Built on a Freightliner chassis, the Grand Tour will start at well over $400,000.
The market for such vehicles is small, of course. But it’s very lucrative — and growing.
How big is the recreational vehicle industry?
According to the RVIA, U.S. wholesale shipments of RVs of all types totaled just over 321,000 in 2013. Most of those were “towable” RVs.
The retail value of the approximately 286,000 RVs shipped in 2012, the last year for which full numbers are available, was about $10.84 billion, according to the RVIA.
How does the recreational vehicle industry work?
Once upon a time, the RV industry had no dominant player. Instead, a long list of small companies marketed their products and made steady profits.
But like many other industries, a wave of consolidation has resulted in a few key players, each of which controls several long-lived brands.
Indiana-based Thor Industries owns the famous Airstream brand, as well as Dutchmen, Crossroads RV, Keystone, the Thor Motor Coach brand, and several others. Thor posted net income of $152.9 million in fiscal year 2013 on revenues of $3.2 billion.
In addition to its famous namesake brand, Winnebago owns the Itasca motor home and Sunny Brook trailer brands, as well as MetroLink, a line of small buses. In fiscal year ended 2013, Winnebago posted net income of $32.0 million on revenues of $803.2 million.
Other players include privately held Allied Specialty Vehicles, which owns several motor home brands (including Fleetwood and Monaco) as well as a long list of fire truck, bus, and commercial vehicle brands; Jayco, which has expanded beyond its popup trailers into premium towables and motorhomes; and Forest River, a Berkshire Hathaway company that controls the Coachmen and Dynamax RV brands, among others.
What drives the recreational vehicle industry?
Like the auto industry, the recreational-vehicle industry is cyclical — sales and profits tend to follow economic cycles closely.
And while RV purchases are more “lifestyle” than necessity for most, RV sales tend to follow auto sales fairly closely. There’s a good reason for that: Both are driven to some extent by consumers’ willing to spend, and by the availability of financing.
But despite the outsized prices on the most luxurious models, RV manufacturers’ profit margins are fairly slim, similar to those seen among automakers. Winnebago’s pretax profit margin was 6.6% in the most recent quarter, while rival Thor Industries did somewhat better, but only somewhat, with a 7.9% pre-tax margin.
And RVs remain popular. While sales haven’t quite recovered to their pre-recession peak, a lot of people own RVs. The RVIA cites a 2011 study showing that about 8.5% of American households owned an RV, with the fastest growth happening in the 35-54 age demographic.
What are the investing opportunities in the recreational vehicle industry?
For investors interested in a “pure play” in the RV space, both Thor and Winnebago offer intriguing opportunities. Both are solidly profitable, with well-recognized brand names and a growing presence in the higher-margin premium tiers of the business. Shares of both companies have enjoyed a solid run since the trough of the last recession but have fallen back a bit recently. Thor pays a small dividend; Winnebago does not.
But investors tempted to bet on RVs should keep in mind that, like the auto business, RVs are a cyclical industry with high fixed costs — but unlike autos, which are a necessity for many, RVs are a genuinely discretionary purchase for most. Share prices of these companies will be very vulnerable to changes in the economic winds.
Columbus, Ind.-based engine maker Cummins Inc. topped the list of the 25 Best Companies in America compiled by The Motley Fool, a leading website for investors.
According to a press release, more than 1,700 publicly-traded companies were put through a rigorous process of analysis by The Motley Fool. Each company was evaluated for its success in serving investors, customers, employees, and the world at large.
The 25 highest-rated companies included well-known consumer names and tech companies along with lesser-known companies.
Senior Analyst John Reeves, who helped oversee the creation of the 25 Best Companies List, noted, “Too many ‘Best of’ lists look at just one factor, such as workplace satisfaction or stock returns. Our methodology is broader in scope and looks at multiple factors that make a company great.
“At The Motley Fool, we believe the companies that effectively serve all of their stakeholders’ customers, shareholders, employees and the world are not only outstanding companies, but possibly great investments as well.”
The Motley Fool, not one to avoid being viciously negative on occasion and sometimes in a flippant sort of way, sounded somewhat bullish recently on Spartan Motors Inc., a chassis supplier to the RV industry.
“More top-performing CAPS (community stock research) members have been feeling bullish about Spartan Motors these days, enough to upgrade it from its long-held four-star rank to a more formidable five stars, though it has since dropped back down to four,” the Fool columnists wrote in their “This Just In” column that examines stocks.
“A total of 492 members have given their opinion on Spartan Motors, with many of them offering analysis and commentary explaining the recent optimism,” the Fool wrote.
The columnists added:
Spartan supplies chassis for RVs and emergency vehicles, and it also supplies parts to builders of military vehicles like Force Protection and General Dynamics. A dismal market for recreational vehicles has slammed Spartan just as it has dealt a severe blow to Winnebago Industries. But it has also provided others like Navistar International with a chance to pick up RV assets on the cheap.
Demand for fire truck chassis and emergency vehicles have been strong for Spartan, though, with the backlog for each growing in the recent quarter, helping offset slower sales to the RV and defense industries. It increased its gross margin in the quarter by 46% over last year, the fourth consecutive quarterly increase, and grew its cash and equivalents balance to $27.2 million thanks in part to $15.1 million in operating cash flow and only $800,000 in capital expenditures in the quarter. The continued performance and rock-bottom share price have had investors jumping back into the stock recently.
And how can you blame them? With military spending providing solid growth prospects for defense companies like Raytheon and Lockheed Martin, Spartan certainly stands to benefit, too. The company’s already working on some new developments in anticipation of a ramp-up in Afghanistan and Pentagon plans of a large order of all-terrain M-ATV vehicles this year.