The Best Peak Oil Investments: Bicycle and Scooter Stocks
When gas prices rise, more people turn to bicycles for transportation. Will these bike and scooter stocks ride in the oil price's slipstream?
UPDATE: Here is an article on one more bicycle stock that should have been on this list: Shimano (SHMDF.PK).
A 2008 survey of bicycle retailers found that the vast majority of bike store owners felt that their sales had increased because many people were turning to bicycles for some of their transportation needs because of high gas prices. 95% of store owners reported that they had new customers because of high gas prices.
While few people can completely replace their car with a bicycle, many people can make some trips on two wheels and human power. And 2008 is not the first time we've seen a surge in bike sales along with a surge in oil prices: the all time record for annual bike sales was in 1973, during the last oil crisis. If future gas prices return to the levels seen in 2008 and stay there, we should not be surprised to see a sustained increase in the use of bicycles for transport, as well as a rise in the purchase of bikes, bike parts, and accessories.
One fly in this ointment is that the biggest increases in sales for bike retailers during 2008 were in service and repair, followed by new bikes and accessories. Bicycle manufacturers saw increased sales in 2008, but not as large as the increases in ridership, because much new ridership came from cash-strapped individuals dusting off old bikes and getting them in shape to run errands or commute. I think it will take a longer sustained rise in oil prices than we saw in 2008 to permanently shift the transportation landscape towards bicycles; investors should not expect perfect (or even near-perfect) correlation between oil prices and bike company profitability.
Babies to Bikes- Dorel Industries
Dorel Industries, Inc (DII-B.TO, DIIBF.PK) is primarily a manufacturer of juvenile (baby) and home products, but in 2004 they began acquiring bicycle manufacturing and related businesses with the purchase of Pacific Cycle. They now own Cannondale, GT, Schwinn, and several athletic apparel and accessory brands such as SUGOI. This segment accounted for $681M or 32% of 2009 sales, up from 30% in 2008. So while bicycles are currently less than a third of sales, they are growing in importance.
In terms of valuation, 2009 earnings were $3.21 per share, easily justifying the recent $33 share price with a trailing P/E ratio of slightly over 10. Dorel has relatively little debt at only 36% of equity and good liquidity ratios, but does not pay a dividend. Overall, the low valuation and strong balance sheet are good compensation for the relatively small fraction of sales that come from bicycles.
Annual General Meeting presentation
Taiwan's Giant of Bike Manufacturing
Taiwan's Giant Manufacturing (GTMUF.PK, TWSE:9921) is the world's largest bicycle manufacturer, with $1.2B in annual sales, twice Dorel's bicycle sales. Giant began as a low-cost manufacturer in 1972, getting its start with an early order from then-independent Schwinn. Today, Giant makes everything for every market, including racing bikes with world-class technology to cheap volume bikes churned out in low-cost factories in China.
Giant's sales fell slightly in 2009 with the slowing economy and lower gas price, but improved margins meant that earnings per share held constant. Giant pays a dividend; it was TWD 4.5 dividend in 2010. The company's stock price is currently trading around TWD 100, having doubled since its March 2009 low. With no long term debt, this company is well positioned for an oil-induced increase in bike sales, even if the oil price increase also undermines overall economic growth. Although the trailing P/E ratio is still a reasonable 15, I feel the stock has room to fall because of the recent run up if the current stock market decline continues.
A Scooter Stock: Piaggio
The First Commercially Available Plug-in Hybrid is an Italian Scooter
Piaggio & C.S.p.A. (PIA.MI, PIAGF.PK) is the leading manufacturer of motor scooters under the Piaggio's and Vespa brands. Where bicycles are more likely to replace the car on short errands than everyday commuting, a scooter will be a practical option for many commuters hoping to reduce their fuel costs. Piaggio scooters get between 50 and 100 MPG, and the company has even released a high-end plug-in hybrid scooter, the MP3 300ie in Europe. After the initial version flopped due to too little power for too high a price, Piaggio has given it a larger engine and power to match the 9000 euro price tag. Even with the larger engine, the hybrid 300ie still gets 141 MPG.
With the stock price at EUR 1.92 Piaggio's Price/Earnings ratio was a reasonable 14, especially if the analyst consensus of a long term growth rate of 30% is correct. Year over year earnings growth was over 40% in the last year. The company also boasts a 3.65% dividend yield.
Electric Bikes and Electric Scooters
Chinese Lithium-Polymer battery and e-bike/electric scooter manufacturer Advanced Battery Technologies (ABAT) was my top pick in my recent in my article Six More EV and HEV Stocks. I concluded that about 50% of the company's revenues come from e-bikes and electric scooters, and the company's valuation seems very attractive. Follow this link for more detail.
For the investor looking for an investment in two-wheeled transport, Giant and Piaggio are attractive pure-play options, and ABAT has an attractive valuation. These alternative transport companies provide relatively low-cost alternatives to the car that have benefited in the past from rising oil prices. All three are profitable and don't have excessive debt; Giant and ABAT have no long term debt. Piaggio pays a decent dividend, but is probably the riskiest of the three given its debt burden.
Because scooters cost considerably more than bikes, Giant would probably be the best investment if rising oil prices exacerbate the weakness of the economy, and people have very little money to spend. Piaggio would likely perform better if the economy is relatively strong even as oil prices rise. Advanced Battery Technologies falls somewhere in between the two.
The data in this article comes mostly from third party sites such as Morningstar and Reuters, so I would not make a decision without first investigating each company in more detail.
DISCLOSURE: No position.