Callaway Golf (ELY-N)

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.

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.

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.

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.

(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.

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%.

It is a turnaround story. The ones that do work usually take longer than people expect it to but the benefits are then usually bigger than people expect them to be. Improved balance sheet, distribution, manufacturing, and product line and the company is gaining market share against the compeition. Last year they were hurt by a bad winter and spring and half their revenue is outside the US so the strong US dollar has hurt them.

(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 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 Dec 05/13, Down 2.82%) The turnaround is about half way through. We had a dismal summer last year and then a poor winter. Longer term restructuring stories are the kind of animal that are lumpy, but when they work they work well so he is happy to hold this. The US middle class tend to be golfers. New product introduction benefits them as does the new CEO’s turning the company around. There should be more upside. You see a lot of young guys on courses in Florida.

The stats on rounds of golf played in the US have really gone down. This company has new technology and people aren’t adopting it. They have really struggled and there is quite a bit of inventory. Not a very cheap stock. PE of 48X.

(A Top Pick July 31/13. Up 6.05%.) Really bad weather this winter and spring hurt the golf industry very much. Even though the industry is down in North America, this company is gaining market share big time. Hopes that in a year the weather will be better and they will come through with better numbers. A turnaround story. Half of their sales are outside of North America. In Asia, golf is booming.

Has avoided this. Prefers Adidas (ADS-GR), which owns TailorMade. Adidas has done very poorly because of TailorMade. Golf demand has waned. The number of rounds played in North America is going down. If this happens, then the demand for equipment is going down. It is much easier to do a turnaround in an industry with the headwind then one with a tailwind. (See Top Picks.)

(A Top Pick May 24/13. Up 21.8%.) We are seeing the signs that this is truly turning around. The CEO has fixed the balance sheet and has turned around a product suite and reintroduced the Big Bertha. Sold off product lines that didn’t work. Ultimately you will get a company that will be highly levered to recovery in the US middle class area.