Harley Bull's Rebuttal
by Bill Barker ([email protected])

Paul's piece, while valiant, is virtually a prototype of generic arguments that are trotted out when there is really nothing specific to actually say against a company. "What if there's a recession? What if its competitors exceed their own expectations? What if it's spending too much investing in new plants and equipment? What if, for no foreseeable reason at all, it just goes into bankruptcy?"

C'mon.

But, hey, I know I couldn't come up with any decent arguments against Harley either -- well, maybe I'd try to get some mileage off of attacking the Harley Davidson Cafe idea, but that's about it.

Let's examine Paul's arguments in the order that he presents them. As to the "what about a recession?" line, let's take Paul's advice and not forget the past lest we are condemned to repeat it. The last recession that I recall was 1991-92. Harley improved sales by 9% in 1991 and 18% in 1992. So Harley's a pretty good stock in which to ride out a recession.

Competition? Polaris and Excelsior are going to take away market share? That's news to them. According to an August 1998 Fortune article, Polaris doesn't even expect to lure customers away from Harley, but from the Japanese cruiser makers. You never know, though -- maybe Polaris and Excelsior will do better than they themselves expect.

Next, Paul offers that Harley is no Cash-King. Fortunately, I don't have to take on this argument myself, as a more articulate Fool contributor, DowDanny, has already penned an excellent post on why Harley with its repeat- purchase/global- consumer- brand/market- beating- historical- performance/supersized- sales/excellent- future/high- net- margins should be in the ol' Cash-King portfolio.

But, more to the point, Paul criticizes Harley's cash flow. Harley has been investing, investing, about $650 million over the past three years to build new plants. The capital expenditures over the three years Paul selects aren't representative of Harley's annual cash flow -- next year capital expenditures are expected to be $60 million less than this year. Most of this recent investment has come from Harley's cash flow, though the company has also taken on a very moderate amount of debt (the debt to equity ratio is about 0.3), and the result is expected to add plenty of high-octane fuel to the Harley growth engine. To call this investment a "cash-guzzler," as Paul does, works about as well here as it would for any company that is building for the future, which is to say, it doesn't work at all.

Finally, Paul offers up the air-ball that maybe Harley's near-bankruptcy in the mid-80s is a reason to avoid the stock today -- an argument that I find somewhat unhelpful to his cause. After all, the story of Harley's turnaround is literally a textbook case used at business schools to teach great management.

With easy answers to each of my worthy opponent's desperate arguments, it looks like the list of butts kicked and names taken by Harley now needs to add one more -- TMF Parlay.

Next: The Bear Responds