GEORGE SCHWARTZ
PRESIDENT
SCHWARTZ VALUE FUND

COMPANY: Thor Industries
TICKER: THO (NYSE)
PRICE: $42.84 (as of 4 p.m. yesterday)
52-WEEK RANGE: $26.27-$44.11
MARKET CAPITALIZATION: $2.43 billion

George Schwartz is the president of the Schwartz Value Fund with about $70 million under management. Ohiobased Thor Industries manufactures and sells recreational vehicles. Mr. Schwartz tells David Dalley of The New York Sun that the company is well worth your attention.

What does Thor do?

It’s the largest manufacturer of travel trailers, the kind that you pull behind the car. Airstream is their main brand. It’s a well-known, highquality towable travel trailer. You use it for camping and the like. They also have a smaller business making motorized RVs.

Why is it a strong buy?

It’s a great company, and it’s largely unrecognized in most investment circles, although it’s not a tiny company. They’ll do almost $3 billion in sales this year, and they have a market cap of over $2 billion. They have unusually good business characteristics – they regularly produce returns of 20% on equity per year, they have no debt leverage, they have 5% after-tax profit margins or better each year, and they’re growing at 15% per annum.

The stock is selling at 17 times this year’s earnings, which makes it an average-priced stock on the big board. But it’s a better company than the average stock. It has better returns and better growth. It’s definitely worth a premium over the average stock. It’s worth a multiple of at least 20, and that equates to a market price of $60 for the stock.

Why is now the time to get in?

Well, it’s selling close to its all time high right now so it’s not a depressed stock. But I think it’s still got a lot of room to grow. I expect its earnings to actually accelerate over the next 10 years. Baby boomers are retiring, and a certain percentage of them like to travel. This is a popular product among that demographic.

What is the competition like?

It’s pretty much in disarray. Fleetwood has significant financial problems. Winnebago is a stronger competitor, but they’ve had some management problems, and they haven’t got nearly the track record or the momentum that Thor has. Another company, Monaco Coach, had specialized in the very high-end market. They did well in the late ’90s, but then when the stock bubble burst, their business went down the tube. They started diversifying and buying other competitors, but their target market was unclear and the whole business did very poorly. Their stock went from $30 down to $12 in a short period. They continue to lose market share to Thor.

What are the risks?

I suppose if the price of gas went to $5 a gallon, that would cut into their attractiveness. Although, I find it kind of odd that people would pay $50,000 for a travel trailer and then worry about gas. Nevertheless, when gas spikes, it does hurt their business. Another risk would be economic problems, which would lead to less disposable income and fewer people retiring. I don’t think these are meaningful risks.The reality is that retirees today are generally in good financial condition, many have inherited wealth,and they’re comfortable enough to retire and buy an expensive vehicle or towable. The bottom line is that Thor’s fundamentals are very strong and they have exceptionally good management. It isn’t a sexy company, but it’s a basic, strong business, with consistently good profits, growth, and products. And that’s a pretty good mix.