Monday, September 4, 2017

BGG for A Hurricane Play - Generators


Alfred Ferol and I chatted recently.  Long time readers know of his contributions to this blog.  Alfred is a conservative investor with a bit of a trader's mentality.  He thinks Hurricane Harvey (and perhaps IRMA) will cause an increased need for generators.


I do not totally share his assessment as I think in preparation for a storm, people buy generators.  He has less faith in the masses being well prepared.   And, he suggests, no one predicted West Houston would be as affected as it is and therefore, these people are going to need generators.

Alfred wants a play that is a short term gain.  His idea of short term is about 6 months.  His conservative self likes to get a dividend while he waits for earnings to increase enough that the stock price also goes up.   In addition, he might have a chance to sell a covered call during those 6 months; juicing his income and total return even more. 

The covered call opportunity, of course, will only materialized if he is right and the need for generators translates into increased sales and earnings.  When the market sees growth potential, they use calls to get in cheap and benefit from price momentum.

Briggs & Stratton Corporation LogoI suggested he add to Home Depot (HD.)  HD will be the final seller of all items needed for hurricane recovery.   Since, he already owns HD, he will benefit from that move but he wants to invest in a stock that builds the generators.  We looked at several and decided on Briggs and Stratton.

Everything you ever wanted to know about generators is available with this link to the Briggs and Stratton site:  https://www.briggsandstratton.com/na/en_us/search.html?searchrequested=generators

Briggs and Stratton symbol BGG, is selling at $20.92.   BGG's price is just about in the middle of the 52 week high of $25.92 and low of $17.90.  At $20.92 BGG's price has corrected just over 19%.

BGG annual earnings are $1.30 with an annual dividend of $.56 for a yield of 2.67%.  Dividend payout ratio is 43.1%.   Dividend growth over the past 4 years has averaged 5.56% and their D/E ratio is a very respectable .553.    P/E ratio (price earnings ratio) at 16.09 is unremarkable. 

All of this data is presented in the table below.




BGG sounds like a good stock.  For me, I don't like the negative slide of revenues -4% over the past 4 years.  This could improve if Alfred is right and demand for generators is strong and Home Depot sells a lot of them.

I will not be adding BGG to the 2017 portfolio but I will track his trade for you and report back when he closes it out.  Stay tuned.

M* MoneyMadam

Disclosure:  No position in BGG, long HD