Back in June, I mentioned shares of Harley-Davidson (HOG, $41.94, up $0.19) had been in a downtrend for 18 months, falling from a high of $75 to a low of $32.18 on 7/15. Two days later, the company announced earnings and since then the stock has been on a roll.
Harley-Davidson reported 2Q earnings of $223 million, or $0.95 a share, versus $291 million, or $1.14, last year. Wall Street had expected earnings of just $0.76 a share so the company beat by 19 cents. Revenue checked in at $1.6 billion or about $200 million higher than estimates.
With the stock at an eight-year low, the stock was beginning to look attractive and I said to wait for the company to report earnings before going long. Most of my assumptions turned up fairly accurate, the stock drifted lower, the weather warmed and gas prices continued to climb. It seems that people are buying Harley’s as a way to combat higher gas prices. Another reason I chose Harley was because there was no “pure-play” in the scooter industry that I liked and it has been apparent that two wheels are cheaper than four.
I said at the time, “usually it’s better to wait and see if a company’s products are back in demand before trying to time a bottom which I’m not quite sure if Harley has hit or not.” Well, Harley did hit its bottom and it was at $32. It would have been have been risky to buy a call option ahead of earnings but that bet would have paid off.
The January 40 calls (HOGAH, $5.20, unchanged) were trading at $4 and the January 50 calls (HOGAJ, $1.32, down $0.08) were trading at $1.15 in the 6/13 blog and they were a lot cheaper when Harley bottomed out. I said to wait for the stock to get above $42 before seriously considering any of these plays and here we are. I wouldn’t go crazy with this trade but one or two call options may be worth a gamble.