Why Undervalued MPX Stock Could Double
With inflation at 40+ year highs, interest rates climbing, and consumers feeling the pinch, most consumer cyclical stocks have been taking a hit. And with Deutsch Bank AG (NYSE:DB), Citigroup Inc (NYSE:C), and Morgan Stanley (NYSE:MS) raising the odds of a global recession to 50%, the outlook for consumer cyclical stocks is volatile.
Not everyone has been taking a hit, though. The number of newly minted millionaires and billionaires increased significantly during the COVID-19 pandemic. (Source: “Pandemic Creates New Billionaires as Global Inequality Rises,” VOA, May 24, 2022.)
And people with money like to spend.
While some big-ticket items are being shunned, the boating industry has been going against the current. American boat dealers recently reported that their sales have gone up by mid-to-high single-digit percentages compared to 2019. The only near-term headwinds that boat dealers have been reporting are weather and product availability. Whenever those headwinds improve, boat sales ramp up. This has been the case for the past two years. (Source: “‘Somebody Forgot to Tell the Boat Industry’ About Inflation, the Bear Market, and Recession Fears,” Yahoo! Finance, June 16, 2022.)
The situation bodes well for boat-related stocks, even though their share prices have, like the rest of the stock market, trended lower since the start of this year.
One beaten-down boat stock for investors to keep their eyes on is Marine Products Corp. (NYSE:MPX).
The company is a leading manufacturer of fiberglass boats under the brand names “Chaparral” and “Robalo.” It makes sterndrive and outboard pleasure boats, outboard sportdeck boats, and outboard sport fishing boats. The company sells its products via a network of 206 U.S. and 92 international independent authorized dealers. (Source: “About Us,” Marine Products Corp., last accessed June 23, 2022.)
Its boats start at $45,000. On the resale market, some of them are listed for more than $200,000. (Source: “Chaparral Boats for Sale,” Boat Trader, last accessed June 23, 2022.)
Marine Products Corp. Reported Solid Q1 Results
For the first quarter ended March 31, Marine Products announced that its revenue slipped by 2.2% year-over-year to $76.6 million. The revenue decrease was a result of a 20.9% decrease in the number of boats, parts, and accessories sold. This was offset by a 23.3% increase in the average selling price per boat. (Source: “Marine Products Corporation Reports First Quarter 2022 Financial Results,” Marine Products Corp., April 27, 2022.)
The company’s gross profit in the first quarter of 2022 was $18.4 million, compared to $18.5 million in the same period of the previous year. Marine Products Corp.’s operating profit in the first quarter of 2022 was $9.2 million, an 8.7% decrease from its first-quarter 2021 operating profit of $10.0 million.
The company’s first-quarter 2022 net income was $7.1 million, or $0.21 per share, a 12.8% decrease from its first-quarter 2021 net income of $8.1 million, or $0.24 per share.
“Our first quarter 2022 results demonstrate the effect of ongoing supply chain challenges impacting our ability to complete final assembly and deliver boats on a timely basis,” said Richard A. Hubbell, Marine Products Corp.’s president and CEO. “In spite of these short-term problems, we are pleased by continued strong recreational boating demand. The most recent winter boat shows were well-attended and generated strong order volumes.” (Source: Ibid.)
Marine Products Stock Could Pay Another Special Dividend in 2022
In April, Marine Products declared a regular cash dividend of $0.12 per share, for a yield of 5.3%. (Source: “Dividend History,” Marine Products Corp., last accessed June 23, 2022.)
As you can see in the chart below, the company had cut its dividend during the pandemic. No one likes to see that happen, but at least it didn’t suspend the dividends. Since then, Marine Products has increased its dividend to where it was before the pandemic: $0.12 per share. This is the highest quarterly dividend the company has ever paid.
While some dividend hogs might not like the current payout level, Marine Products Corp. supplements its regular dividends with special, variable, year-end dividends. The company has paid eight annual special dividends since 2012. It last paid a special dividend in late 2020 ($0.04 per share).
The fact that Marine Products Corp.’s quarterly dividend is back to where it was before the pandemic, the company has never skipped a special dividend for more than one year at a time, the company has a historically high order backlog, and boat dealers have low inventories of the company’s products bodes well for the possibility of another special dividend in 2022.
MPX Stock’s Recent Performance
A special dividend later this year would certainly offset any near-term pain investors have been feeling with regard to Marine Products Corp’s share price.
Moreover, for most of this year (save for the past few weeks), Marine Products stock has performed better than the rest of the stock market. From the start of 2022 until the middle of May, MPX stock went up by 1.5%. That might not sound stellar, but over the same time frame, the S&P 500 went down by 15.1%.
Concerns about decades-high inflation and a possible recession have dragged Marine Products stock lower over the last few weeks. As of this writing, MPX stock is down by:
- 12.8% over the last three months
- 30.0% over the last three months
- 24.3% over the last six months
- 27.6% year-to-date
- 47.7% year-over-year
Grim numbers indeed, but again, most of those losses have come over the last few weeks. Before that, Marine Products stock had held up pretty well.
Chart courtesy of StockCharts.com
With Marine Products Corp now in its traditionally strong sales period, robust financial results and a return to investor optimism could see MPX stock rebound quickly and, at the very least, erase all of its losses from the last two months. If the stock does rebound, that points to potential gains of 50%. Getting back to where it was last summer would represent a 100%+ increase.
The Lowdown on Marine Products Corp.
Marine Products stock is a boat manufacturer stock that has, for the most part, performed well in 2022. It hasn’t been all smooth sailing, though. The stock’s price has taken a recent dip on fears of a recession and rising interest rates.
That said, the demand for Marine Products Corp.’s products is high, the inventory levels of those products are low, and the company has managed to hike its prices without customers balking. With supply chain issues improving, the outlook for MPX stock is robust. Furthermore, to help investors ride out the economic uncertainty, Marine Products Corp. pays high-yield quarterly dividends and could reinstate its year-end special dividend.