As summer approaches, many Americans are exhuming their golf clubs from the back of garages, hall closets, attics, and basements in the hope that this is the year the handicap will come down. It seems that many others, however, have given up on the sport or at least on the hope that new equipment will improve their game. Although golf is a $60 billion industry worldwide, participation has slowed and revenues across the industry have suffered. There have not been many great investment opportunities in the sport to help some of us recoup the greens fees we shell out every year for those often-frustrating strolls on the links. But with the economy recovering and golf on the rebound, are the prospects improving?

What's in your bag?
 Callaway (NYSE:ELY) owns some of the best-known brands in golf, including Big Bertha, Odyssey, Ben Hogan, and Top-Flite. Yet despite its brand strength, the company has been disappointing investors with uninspired results for years. Since trading up to $20 in the spring of 2004, Callaway has fallen more than 40% and can now be had for around $11 per stub.

One bright spot for Callaway is that it experienced 14.8% sales growth in 2004 -- generating more than $930 million in revenue -- which the company attributed largely to a 195% increase in sales of golf balls. Unfortunately, that total sales number is expected to fall back down to approximately $870 million, and because the company has already missed earnings targets once this year, it could be even less.

There are a number of reasons why Callaway cannot generate steady earnings. One, of course, is competition. From clubs to balls, Callaway must vie with the deep pockets of behemoths Nike (NYSE:NKE) and Fortune Brands (NYSE:FO), a conglomerate that markets the popular Titleist, Pinnacle, and Cobra brands.

Be a Tiger
Nike Golf is hoping for a lift following spokesman Tiger Woods' recent victory at the Masters. The company has produced an ad using footage of Woods' memorable chip-in from the rough at the 16th green. For those of you who don't know what I'm talking about, Tiger's shot rolled down to the hole and paused for a moment on the lip -- conveniently giving Nike a great shot of its trademark swoosh -- before dropping in. The ball Tiger was using happened to be the One Platinum model, which goes on sale this year for $54 per dozen. On the back of this seemingly infallible marketing campaign, Nike Golf hopes to increase golf ball market share from its current 9%.

Nike is also hoping that Woods' victory will end whispers that its "inferior" golf products contributed to his swoon on the PGA Tour the past few seasons. The golf division is already reporting increased earnings this year (a welcome change from last year), and the company's $1.6 billion cash reserve tells me it won't let the division falter. At a current P/E of 18 -- below its historical average -- a yield of 1.3%, and a hope at regaining some of the credibility it had during the years when Michael Jordan was its icon, Nike could be a nice value play right now.

Fortune's fortune
Golf made up $1.2 billion of Fortune's $7 billion in revenues in 2004. That's a drop in the bucket for a company with a market cap of more than $12 billion, but it exceeds Callaway's entire revenue stream. Moreover, Fortune's golf brands, unlike Nike, have not had to fight allegations of inferior quality. Titleist is the most popular golf ball in the world and the second-most popular club in the United States.

The price of Fortune's stock has increased dramatically since the beginning of 2003, driving its yield down and its P/E ratio up. Nevertheless, with a reliable revenue stream from a portfolio of products that includes hardware, liquor, and golf, the company would be worth a look if the stock suffered a fall at the whim of the market.

Buy online
One area that has growth potential is the online sale of new and pre-owned (a less objectionable word than "used") equipment. Callaway acquired FrogTrader in 2004 to bolster this segment of its operations, which also allows Callaway equipment owners to trade in older clubs in exchange for credits toward more expensive upgrades.

Another company, The Sportsman's Guide (NASDAQ:SGDE), acquired online retailer The Golf Warehouse in 2004. The acquisition added 11% to SGDE's top line in just six months of operation, and sales are growing. Although the company reported record results in the first quarter based on the combined numbers, I am hesitant to value the stock without waiting to see a few more quarters of performance. Fool contributor Jim Mueller continues to like the stock, but he is concerned about the excessive number of options the company continues to grant.

What's left?
One interesting golf enterprise that Tom Gardner's Hidden Gems Foolish 8 screen recently pulled up here at Fool HQ is Aldila (NASDAQ:ALDA). This company manufactures graphite shafts for everything from beginner to performance golf clubs. It has a $100 million market cap, more than 20% insider ownership, and an 18% net profit margin, and it experienced an amazing 40% growth in sales in 2004. That growth continued in the first quarter of this year, with the company announcing sales of $17.8 million, and a 16% increase year over year. Today, most woods (used for longer shots) are already manufactured with graphite shafts, but growth opportunities remain for irons (used for mid-length shots). According to Aldila, only 26% of new irons purchased use graphite shafts. Because Aldila markets largely to manufacturers (Fortune and Callaway were its best customers), it is largely immune from consumer-marketing costs. The company can also benefit from growth across the entire industry, unlike most golf retailers, which have to compete for a shrinking pool of customers. Plus, with $11.5 million in cash and zero debt, the company also seems to be in healthy financial shape and fully recovered from the fall in revenue and profits that sunk the stock earlier in the decade.

Aldila may be the hottest of these investment opportunities, but it's no sure thing, given the seasonality of the golf market. Plus, any increase in the sale of pre-owned clubs (likely if economic growth continues to slow) would significantly hurt Aldila. Nike and Fortune are stable ships, but I don't think either has the potential to overwhelmingly outperform. The golf industry, like most golf courses, is expensive, crowded, and competitive.

Tom Gardner can help you find more companies with strong fundamentals like Aldila. Take a free trial of his Hidden Gems newsletter by clicking here. His expertise has been beating the market for years.

If you want to join Tim Hanson for 18, drop him a line. For a nice course, he's willing to travel. He has no financial interest in any of the companies mentioned in this article. The Motley Fool is investors writing for investors.