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Gurus Seek Profits in Fun, Sun

This column was originally published on RealMoney on July 6 at 3:00 p.m. EDT. It's being republished as a bonus for readers.

It's summer and my thoughts are focused on, well, having fun. That got me thinking about which companies benefit from our desire for recreation.

I found that the recreational products industry has several companies that attract the attention of the guru strategies I follow. Some are marine-oriented, some are toymakers and then there's that icon of the open road, Harley-Davidson (HDI).

Each of these names stacks up well against the strategy based on the writings of Peter Lynch. The Lynch strategy looks, in part, at the price-to-earnings ratio relative to growth, which is a measurement of how reasonable the price is. A low P/E/G suggests the price might be a bargain.

The other strategy I reference is based on Warren Buffett's methodology, which as I understand it, looks for companies with a competitive advantage, predictable earnings increases, conservative financing and a return on equity of at least 15%, among other criteria.

Brunswick (BC - Get Report), which makes Mercury outboard engines, Boston Whaler boats and bowling centers, among others products, gets good marks from the Peter Lynch strategy I use. One aspect of Brunswick that is impressive under the Lynch strategy is the company's low P/E/G ratio. This needs to be 1.0 or less, with the most desirable P/E/G ratio being 0.5 or less. Brunswick fits into this most desirable category, with an impressive P/E/G of 0.26.

For companies with sales greater than $1 billion (Brunswick's are $6 billion), this methodology likes to see the P/E ratio remain below 40 -- Brunswick's is 8.88. The company is also doing a fine job of managing inventories, as its inventory-to-sales ratio has gone down in the past year.

Further, its earnings have been growing at a rate of 34.5%, based on the average of the three-, four- and five-year historical EPS growth rates. This is nicely within the desired 20% to 50% range. Brunswick is definitely throwing strikes.
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