Overwhelming - BC
Brunswick - BC - $53 will remain as one of my top ideas, despite the overwhelming confusion caused by tariffs. The stock is down about 20% for 2025, in a flat overall market.
It is possible the best decision is to sell all stocks with tariff confusion, and just own utilities and food stocks. I just cannot do that. I think we have to learn to live with some tariff confusion.
I knew this was the call that I did not want to hear. BC is a very transparent company. They are also right at the center of the tariff controversy. While only about 5% of COGS come directly from China, the earnings effect could be $2.00/share. There are also components from Canada and Mexico that are effected. Some of this can be mitigated by changing supply chains, and some cannot be easily changed. BC might have been 20% or more in China content in 2017 when Trump did some early tariff work. The real issue is the dramatic overcapacity in Chinese steel making capacity that flows through to many underpriced components.
To further add to the confusion you must try to understand the effect of the tariffs on competitors engines that come from Japan, and that have much more Chinese content. In fact tariffs could eventually be a significant benefit to BC.
BC is a difficult company to forecast even without tariff confusion. BC lowered guidance to $2.00 to $4.00 for 2025, but the real question is what to estimate for 2026. At BC’s 2023 investor day the company did a detailed contingency plan that estimated that “trough” earnings should be $6.00 share. We are already well below that forecast.
Yes, I should have waited to buy all consumer cyclicals. I was too early. I was wrong, I should have owned utilities instead.
But what should I do now? I think I must own these stocks right now, despite the uncertainty. The whole reason to write this crazy blog is to show the difficult decisions an analyst/portfolio manager must make. BC is one of those tough calls.
50%+ of BC’s revenues are either recurring parts sales, boat club sales, or smaller fishing boats. This business is flat to slightly up. Expensive boat sales are volatile. BC has been doing a good job of managing dealer inventory..
I still think mid-cycle earnings power is still $8-$10/share, which makes the stock dramatically undervalued at $53.
BC is not owned by any of my other value “friends”. I have no problem with that. I have followed BC from the 1980’s when they were also a billiards and bowling company. Managers I worked with were 13-D filers on BC’s former competitor Outboard Marine (now part of Bombardier). I think I know this industry better than say medical products or financials.
BC does have an interesting 6% owner in Turtle Creek Asset Management. They are former Canadian private equity guys that have run a hedge fund in Toronto since 1998. Their largest holding is Celanese. Their 2nd largest holding is Middleby. 3rd is an interesting Canadian firm ATS. BC is their 4th largest holding. Turtle Creek doubled their BC position in late 2024. 5th largest is Carmax - KMX, another idea I like. They are clearly long-term value guys, and I will get to work on Celanese when I can.
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Best ideas:
Halliburton
Brunswick
Teck
Matador
to be continued