This company makes some of the most well-known products in the
world. It's slogan -- "Just do it" -- has become a mantra for a
generation of young athletes...
I've personally owned this company in the "real-money" portfolio
for my
Stock of the Month
advisory for half a year now. Since I bought it last November, I'm
already up 16% on my original investment...
But I think this stock still has plenty of upside left... and
thanks to a couple special catalysts this stock has going for it, I
think now is a good time revisit this retail giant.
The stock I'm talking about is
Nike (NYSE:
NKE
)
, the popular U.S. retailer. Not only are Nike's products some of
the most recognizable on the planet, I think Nike stock could also
be one of this summer's biggest winners.
Here's why...
First off, when it comes to athletic apparel, Nike is the
market
leader. Whether your sport is basketball, soccer, running, tennis,
wrestling, or cheerleading -- Nike is known for its ability to
provide high performance specialty footwear and apparel.
As a stock, Nike also delivers high performance. In the past five
years, Nike has delivered an annual total return of 17.5%, compared
with a paltry average annual return of 1.0% in the S&P 500
Index
.
More recently, the company has performed well financially. On April
6, Nike reported the results from its third quarter of fiscal 2012
(ended Feb. 28, 2012). The company grew revenue by 15% and
net income
by 7% from the equivalent period a year ago.
Much of Nike's growth in the past few years has been supported by
sales growth abroad.
Yes, U.S. consumers still love to spend money on sporting goods --
Nike's U.S. sales are up 17% -- but other countries are also
growing hungry for Nike's products. The company's emerging market
sales grew to $793 million in the third quarter -- a 23% increase
from the same period a year ago, according to the company's most
recent filing.
In China, Nike has also become very successful connecting with the
country's youth market by featuring Chinese athletes such as the
100-meter hurdle Olympic gold medalist Liu Xiang, National
Basketball Association player Yi Jianilian and Li Na, the 2011
French Open grand slam winner.
Nike currently sells its products in more than 7,000 stores in
China, with sales of more than $2 billion annually. Recently, Nike
announced it plans to more than double its revenue from China in
the next four years.
Growing sales in
emerging markets
also hold another major advantage for Nike. Most of Nike's
manufacturing is done in China and other Asian countries where
currencies have been strong and
inflation
has been higher than most of the rest of the world. This has put
some pressure on Nike's manufacturing costs. But if Nike sold a
greater percentage of its goods into those markets, some of its
margin
pressures would be mitigated.
On top of the already solid fundamentals supporting Nike's share
price, Nike also has two catalysts going for it that could push the
stock higher in the next 12 months.
The first is a new deal that the company struck with the National
Football League a few years ago. Starting this next season (2012),
Nike will be the exclusive provider of NFL uniforms.
Not only will thismean more jersey sales to fans, but it puts the
company's logo in front of some of the biggest audiences in the
world. In 2011, nine of the 10 highest-rated TV broadcasts were
NFL-related.
The second
catalyst
is the Olympics, as Nike also has a strong track record of beating
the market during Olympic years. Since 1984, the stock has beaten
the S&P 500 six out of seven times during the two weeks of the
summer games.
Once the London Olympic Games begin in July, I expect we'll see a
repeat performance for Nike stock.
Risks to Consider:
Of course with investing, nothing is 100% certain. Like most
retailers, Nike's margins are getting squeezed by rising costs.
While Nike plans to increases prices, the company acknowledges that
costs could continue to rise faster than prices in the near
term.
Action to Take -- >
But that said, Nike still looks like a good investment right now.
The resilience of the U.S. consumer, coupled with the company's
growing
market penetration
abroad should continue to support Nike's share price... and with
the Olympic torch set to leave Olympia on May 10, now could be a
good time to pick up a position.
-- Amy Calistri
Amy Calistri does not personally hold positions in any
securities mentioned in this article. StreetAuthority owns shares
of NKE in one or more if its real-money or investment
portfolios.