In light of several geopolitical issues that can increase market volatility during the fourth quarter, the GuruFocus All-in-One Screener identified three recreation companies that have the financial strength to withstand a market downturn: Brunswick Corp. (BC, Financial), Bowl America Inc. (BWL.A, Financial) and Clarus Corp. (CLAR, Financial).
Dow rises as trade optimism outweighs concerns of Trump’s political future
The Dow Jones Industrial Average reached an intraday high of 26,970.59, up 162.82 points from Tuesday’s close of 26,807.77, on President Trump’s comments that a trade deal with China can come “sooner than expected.” Additionally, Dow component Nike Inc. (NKE, Financial) contributed to the gain on strong revenue and earnings performance during the quarter ending August 2019.
Despite the renewed trade optimism, investors also grappled with geopolitical issues, including Brexit and Trump’s political future in light of concerns involving an impeachment inquiry.
Recreation industry overview
The recreation industry, a subset of the travel and leisure industry, consists of companies that provide services that involve fun activities like bowling and rock climbing. The industry is highly competitive as consumers have a wide range of recreation activities to choose from. Additionally, the industry can be sensitive to changes in the business cycle: During economic downturns, consumers tend to cut back on discretionary expenses.
Despite the cyclical nature, the recreation industry still contains several stocks with high financial strength and good business operations according to the Screener. A backtest of the strategy with quarterly rebalancing saw the model portfolio return 28.09% during the period from January 2018 to September 2019, outperforming the Standard & Poor’s 500 exchange-traded fund benchmark's return of 10.52%.
Brunswick
Mettawa, Illinois-based Brunswick manufactures a wide range of recreational products, including boat engines, fitness equipment and bowling lanes. GuruFocus ranks the company’s financial strength 6.1 out of 10: Even though the debt-to-equity ratio of 0.88 underperforms 67.29% of global competitors, Brunswick has a strong Piotroski F-score of 8, a solid Altman Z-score of 3.58 and interest coverage above Benjamin Graham’s safe threshold of 5.
Gurus with large holdings in Brunswick include Jim Simons (Trades, Portfolio)' Renaissance Technologies and 2019 Value Conference Speaker Mario Gabelli (Trades, Portfolio).
Bowl America
Alexandria, Virginia-based Bowl America operates 18 bowling centers that provide offerings like bowling parties, cosmic bowling, leagues and open bowling. GuruFocus ranks the company’s financial strength 9.6 out of 10 on several positive investing signs, which include no long-term debt, a strong Altman Z-score of 10.65 and a solid Piotroski F-score of 7.
2019 Value Conference Keynote Speaker Chuck Royce (Trades, Portfolio) owns 451,600 shares of Bowl America as of the latest portfolio date.
Clarus
Salt Lake City-based Clarus designs, manufactures and markets outdoor equipment and apparel for climbing, mountaineering and backpacking. GuruFocus ranks the company’s financial strength 7 out of 10 on several positive indicators, which include a strong Piotroski F-score of 8, a solid Altman Z-score of 3.92 and debt ratios that outperform over 67% of global competitors. Despite this, Clarus’ interest coverage of 9.04 outperforms just 55.94% of global peers.
Disclosure: No positions.
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