One of the more interesting niches in the mighty automobile industry is specialty vehicles. After all, consumers don't only want cars, trucks, and motorcycles for everyday use, they also like zipping around on off-road machines and going airborne with purpose-built, next-generation aircraft. Yet the specialty business is at times even more cyclical than mainstream auto, and on discouraging recent news the cycle seemed to be approaching a low.
Leading the deceleration trend was Polaris (PII +1.76%), which reported fresh quarterly results and was down 14% in share price week to date as of early Friday, according to data compiled by S&P Global Market Intelligence. The same source indicated that BRP (DOOO +2.31%) was sinking by 11%, and Joby Aviation (JOBY +8.59%) shares had shed almost 8% of their value.
Not quite a North Star of its industry
The most direct news item impacting specialty vehicles as a group was that Polaris earnings report. Quite frankly there wasn't an awful lot to like in those third-quarter numbers, particularly the 23% year-over-year sales decline reported by the manufacturer of off-road vehicles and motorcycles. Compounding that, the $1.72 billion in sales and net income of $0.73 per share came in well short of the consensus analyst estimates.
NYSE: PII
Key Data Points
BRP doesn't exactly have the same product lineup but its selection isn't too distant; it makes boats and associated components, as well as powersports vehicles. As it exists in the same general environment as Polaris, investors traded out of its stock, too.
Joby Aviation specializes in a different specialty -- it's developing electric vertical takeoff and landing (eVTOL) aircraft for use as taxis. Its potential market is obviously quite different, but if customers are pulling back their spending on all-terrain vehicles and speedboats, they likely aren't hyped about advancing the unmanned air taxi segment.
Meanwhile, we're just in front of a potentially monumental presidential election, with Americans choosing between two candidates who have significantly different philosophies on trade. Former President Donald Trump has pledged to be aggressive toward big exporting nations -- hello, China! -- that move a lot of product to our shores.
At the kickoff of the week, a team of analysts at Citigroup flagged a clutch of stocks in various sectors that might be vulnerable to such changes. In what it terms the "leisure category," Citi identified active parts importers Polaris and BRP as companies with vulnerability to U.S. trade regime modifications.
Buy on the down low?
Of course, the upside to any down cycle -- assuming we're entering one, of course -- is that once-pricey stocks fall to bargain levels. I'm not personally excited about any of the three companies, as I don't foresee a sudden explosion in the popularity of Polaris' and BRP's wares, and the future of Joby's air taxis is speculative at best. But for patient believers in the business models of any of these companies, now might be a good time for a buy-and-hold play.
