By Rick Aristotle Munarriz
June 9, 2008
Recommended (2)
"Why don't we hit the road in an RV this summer?"
If that's the kind of question that triggers uncontrollable laughter, it's because everyone knows that this is the worst possible climate for the recreational vehicle industry. A tight economy is keeping big purchases -- and even rentals -- in check. Gasoline breaking through the $4 ceiling is a killer for these gas-guzzling vehicles.
Don't take it from me. Take it from Wall Street. Winnebago (NYSE: WGO), Thor Industries (NYSE: THO), Skyline (NYSE: SKY), and Fleetwood (NYSE: FLE) -- companies that make either RVs or nonmotorized, towable habitats -- are all trading near their 52-week lows. Some of them have come a long way down, too. Winnebago and Fleetwood are each trading at roughly a third of last year's high.
That's the kind of beating that usually brings out the vultures, but it's not happening this time. Many speculators think that the stocks will continue their painful descents. Three of the companies are among the 20 New York Stock Exchange stocks with the highest short interest ratio.
| |
Short Interest
|
Avg. Daily Volume
|
Days to Cover
|
|
Winnebago
|
9,065,459
|
223,982
|
40
|
|
Fleetwood
|
14,327,851
|
423,216
|
34
|
|
Thor
|
14,996,298
|
530,224
|
28
|
As of May 30, 2008.
Short interest ratio is important, as it divides the number of shares held short by a stock's average daily volume over the past month. Theoretically, it would take 40 days of buying at Winnebago's average daily volume for its shorts to cover their positions.
I'm a fan of the contrarian practice of eyeing stocks with high short interest ratios as potential short squeeze winners. The problem is trying to locate a catalyst to knock the industry back into favor, and that's unlikely to come in the near term.
We will have more insight on the industry when Winnebago posts its latest quarterly earnings report. Earnings may be heading lower for the sector, but at least companies like Thor and Winnebago can point to steady streams of profitability.
The industry will bounce back, eventually. Stubborn oil prices and an iffy economy aren't permanent ailments. Along the way, the market leaders won't mind if hard times shake out some of the competition. It will mean more market share for them when the industry revs back into favor.
In other words, start loading up on your due diligence within the sector, but don't start driving these stocks off the lot until you see weaker players fold or stronger players bounce back.
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