Norman Levine Callaway Golf ELY-N TOP PICK Mar 20, 2015

(A Top Pick Dec 5/13. Down 7.33%.) Basically a story on the recovery of the middle class. US is starting to get its mojo back. When that starts to occur, you start to see more spending occurring. Consumers are still looking for something to be on sale. What is plaguing the business at the moment is that they are trying to do a lot of business in Japan, but the currency trade has caused a lot of issues. Likes the story longer-term. 0.5% dividend yield.

(Top Pick Feb 5/14, Down 0.22%) The turnaround is working amazingly well. It is not reflected in the stock price. They are gaining market share. Last winter was severe and the spring was awful so lots of courses were not operating at first. They have a big overseas market and the fall of the Yen is starting to be reflected there. The company is doing all the right things, however.

A turnaround stock and management has been doing an amazing job in a difficult environment. They cleaned up the balance sheet, brought out new products and gained market share. The headwind on this has been the weather. The US$ has also been a big negative for them as they have about 50% of revenues from outside the US. He sees margins continuing to improve. Dividend yield of 0.42%.

(Top Pick Mar 20/15, Up 5.58%) It was a turnaround story with a new CEO, nothing to do with golf. So far he has taken the balance sheet and fixed it, and fixed the products that were losing market share. He is working on golf balls now. He has greatly improved profitability. He continues to like what they are doing. Ultimately they could get taken out, but he is staying with it regardless.

He bought this as a turnaround and it has worked out well for him. It is now into a growth phase. One of the few companies on the NYSE that actually has earnings growing, one of the reasons the stock is doing well. Nike (NKE-N) getting out of the business gave the stock a nice pop, and he took advantage of that. He would still buy the stock for new clients.

Sold his holdings about a year ago, because it had gone from “turnaround” to “good profits”, and had thought that in the near term its profitability had probably gotten ahead of itself. However, the CEO has continued to deliver great results. They are the leading company in the industry.

Everyone back then was saying golf was dead and dying. They brought in a new CEO that had turned the acquisition around. It has been built up so you are buying golf balls all the time. It has recently come off because of the snow outside. It will hurt their sales short term. It might be something worth buying because it will come off because of the summer.

They were selling golf equipment only until they bought Topgolf, a high-tech gold/entertainment venue including bars, paying more for it in 2020 than ELY's entire market cap at the time. He didn't like that they massively diluted their shares to do this, doubling their debt. But the deal paid off. Topgolf is now ELY's top segment, growing revenues by 27.5% YOY and 32% on a constant-currency business. Margins are rising. ELY forecasts 10-12% revenue growth in 2023, a lot from Topgolf, though their profit forecast is mixed. Macros trends: on-course gold participation is flat, but off-course (bars) is up. Topgolf is a major driver in the latter.