Callaway Golf (ELY)

Golf industry is hurting because of the cold winter and late starts for courses. You want to buy before everyone else gets in. Spring you go in and summer you get out. It is currently at the base of the trend line. If it breaks below you might even want to exit.

(Top Pick Apr 10/13, Up 27.58%) It is a turnaround situation and sales, earnings and market share are up substantially in the first quarter. But the first quarter is not normally very good due to weather. Golf is delayed because of weather this year. This is an opportunity to get into this one. Fundamentals long term in the company are continuing to improve.

Have been suffering with a turnaround for years now. Big Bertha was a revolutionary club when it came out. Nike (NKE-N) has made a huge push into golf and they are a brutal competitor. This is a consumer product type situation and rather narrowly focused. Golf is suffering a little bit with the economic malaise in the US. This will come down to whether management can pull off the turnaround. If they can, this will probably do reasonably well.

(A Top Pick March 15/13. Up 45.2%.) A play on golf, but also a play on a turnaround. Turnarounds take longer than expected and don’t always work, but when they work they always work better than expected. Gaining market share.

(Top Pick Feb 13/13, Up 24.80%) Was a play on the recovering middle class consumer in the developed world. If you get a turnaround story correct it tends to overshoot, which it is.

A turnaround stock and is not for everybody. Turnarounds can be risky and usually take longer than people expect. The founder Ely Callaway died and the company was run by non-golf people who were running it into the ground. They brought back a golf person who has improved the product line, the manufacturing process and the balance sheet. Next Friday they are re-launching Big Bertha, which was the best name in golf. Thinks this is very good for the stock.

(Top Pick Dec 18/12, Up 30.19%) The company brought in a CEO that knew more about golf. He turned it around. Improved manufacturing and marketing and they are starting to gain market share.

New CEO effectively sold off some products and sort of right sized the company and improved the balance sheet. This is a play on the recovery of middle and upper income demographics.

Just reported its latest quarter. Its sales, earnings and market share were all up. A turnaround story. New CEO is doing all the right things. Turnarounds usually take longer than people expect, but if they work, they work out way better than you expect. Early signs for this one are very good.

Management is very important in these types of leisure businesses. The real problem is the demographics for golf. Aging baby boomers are starting to edge out of golf and it is continuing to get expensive.

Turn-around story. Suffered during financial crisis but as middle class recovers this will be a positive story. They cut their dividend.

Turnaround stock. Used to be the market leader but when Ely Callaway passed away, non-golf professional managers were brought in and didn’t do a good job. Brought in the former CEO of Adam’s Golf last year and he is turning it around now. Cut back on production facilities, introduced new products, straightened up the balance sheet and is now waiting for sales to start to come in. Doesn’t expect much to happen until at least next year and into 2015. If sales start to come in, the stock could easily go up 40% to $10-$11.

This is a turnaround story and this is the riskiest thing to be doing. It can have the highest reward but it is the highest risk. Turnarounds don’t always work. Believes this one will be a winner. Also, turnarounds always take longer than what you think they will take. When they work, they do work far better than you think they will.

Likes the new CEO and his turnaround strategy. All retail really had a tough time from the onset of the global financial crisis through to the recession. US is starting to come out and there will be new individuals entering the business and old golfers replacing their clubs. Sold off some non-core assets and restructured the balance sheet.

081660-KRX Fila (Korean Exchange) (How do I invest in Titleist?) Fila, a clothing company based in Korea, has had a pretty hard time. Titleist is effectively a golfing game and presumably you want to tie into the recovery of the US consumer. Consider going into Callaway, which is the same kind of story and the stock has turned around. Recently put in a new CEO and are trimming the business down, moving off non-core products and focusing purely on the golf. This is a 2-3 year story so make sure you know when to get out.