This Stock Is a Real Star

Estimates have been trending higher for Polaris , a manufacturer of snowmobiles, all-terrain vehicles, motorcycles and boats. It's now expected that each of the next four quarters will show highly favorable year-over-year comparisons. Those type of reports tend to get traders excited, pushing shares higher. The company's long-term growth, documented below, has been enviable. Continuous shareholders have done quite nicely. Those who occasionally took profits, when PII looked expensive, then repurchased cheaper, could have done much better. Despite those good numbers and positive future expectations, PII was available on Friday at a below average multiple while paying an above average yield of 2.71%, Polaris' typical price-to-earnings runs about 17.5-times accompanied by around 2.10% in yield. A simple regression towards that mean could easily send PII back to above $115 by Dec. 31, 2021. That goal might end up being too conservative. PII peaked between $104.30 and $158.20 during each of the eight years stretching from 2013 right through 2020 year-to-date. Next year's estimate, and beyond, suggest all-time record profits are now on tap. Yahoo Finance is in general agreement regarding PII. It sees the shares at $116.71 by this time next year. Independent research house Morningstar calls PII's present-day, as opposed to year-ahead, fair value as $98 per share. They also note the firm's wide economic moat and exemplary management team. Owning PII under $92 should work out well as a good quality (financial strength = A) total return holding. Option-savvy traders could make outstanding, low-risk, returns by setting up very conservative Jan. 21, 2022 $90 strike price buy/write combinations. The graphic below shows actual option prices on those transactions, with PII at $91.67. Buy/write combinations involve purchase of at least 100-shares while shorting a covered call -- or calls -- and a naked put -- or puts-- on the same underlying stock. When executed in a margin account with excess buying power the cash generated from the two option sales can be used to help pay for the shares being purchased. That significantly lowers the initial out-of-pocket cash outlay. If held through expiration day there are just two possible outcomes. PII will close on Jan. 21, 2022 at $90 or above, where it already is, or below $90. If the former situation occurs the following best-case scenario would unfold. Combination writers would see at least 64.1% total returns over the full term, translating to 51.4% annualized, assuming no dividend increase. Those are pretty amazing numbers, considering they would be earned if PII goes up, stays unchanged or even if it declines slightly from the trade inception price. What if PII fails to hold $90? If so, the worst-case scenario detailed next would play out. Barring a major negative surprise even that possibility appears far from scary. You'd end up owning a double-sized position and need to lay out some additional cash when exercised on the put. The good news, though, is your average net cost would drop to just $71.80, a full 21.6% below PII's trade inception price. Future stock market action can never be guaranteed. We can know for sure, though, that owning PII at $71.80 would have been a winning position for all but about 10 of the previous 198 weeks, 94.9% of the time, dating back to prior to the start of 2017. That's about as good as it gets in terms of stock market risk to reward. Buy some PII shares, sell some PII puts or set up full buy/write combinations as described above. Polaris represents a solid, dividend paying company with fine total return potential.

This Stock Is a Real Star

Snowmobile-maker Polaris offers fine growth and is reasonably priced.

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