) is taking emerging markets growth and it shows in the stock
price. Recently on Fast Money we were asked to talk about
stocks we would buy on a pullback and to discuss levels.
Nike is a stock that fits the bill perfectly. Earlier this
week, Nike has been down for 5 straight days although the moves
were small. This was only the second time since July we had seen
this loss of momentum in the name.
Meanwhile the stock is +52% YTD. So where would I own this
stock and what's the fundamental call?
I would own this stock at $75 which places it right on its 50
day moving average. On a break of this level I would load
the boat back near $69.80, and add in size at the 200 day moving
average which is $65.00 area. This is where the stock
re-rated from August.
This is secular global growth story due to U.S. and global
wellness awareness, as well as the emerging middle class.
This is now a $75 billion industry globally with 6% growth in
footwear and sporting goods expected until 2020.
Nike and Adidas have a virtual duopoly in footwear and
barriers to entry for new competition will rise even further as
scale issues to the business model settle in. Both
companies enjoy extraordinary pricing power, labor
They also benefit from direct retail selling both in store and
online which is adding to margins which in turn is reason to see
these stocks re-rate.
We believe these elements are NOT priced into the stock.
The valuation of Nike is fair relative to its history at 22X
'14. Nike trades at a slight discount to Adidas and
significant discount to other players like Sketchers, Puma, who
trade in a mid 30's multiple or higher.