Nike Inc (NKE)

vs. Lululemon It's almost like an ETF for athletic lesiure plays, because Nike offers many brand in its store. Lulu is by far the leader here. He thinks 35% of Nike's sales come from digital vs. Lulu's 42% and it grew 17% this quarter, which is amazing. Once a consumer finds a website they like buying from, they keep buying there.

Despite inflation eroding demand, Lulu and Nike still have a lot of pent-up demand to go further, driven in innovation and demand for leisurewear. Nike at 30x is a PE you've been wanting to see, with shares dropping from $175 to $120. That has priced in downgrades of the last month.

He still likes Nike. His gut tells him that their Chinese business will be good and Nike pulls it off. He wouldn't be surprised if they beat their report. He actually likes American companies with large exposure to China, even though their shares are coming down a lot.

It reports Thursday. He doesn't expect good things. It supply chain is in tatters because it sources 50% of its materials from Vietnam and some worry that China's government will crack down on sneakers next. Nike, though, has nine lives. You can't short it or go long Nike. Be careful here.

Sneakers and other casual shoes are doing well. Has done well from the leisure demand from WFH. Believes people will start buying other types of apparel. Take some profits. The company has done well. Probably fully priced here.

(A Top Pick Jul 14/20, Up 68%) They put out some long term guidance that blew the street away. They have a strong history of beating and raising. It is more of a hold now at these prices.

How did so many get Nike so wrong? He used to own it, but sold it over the last three months. He was worried. Now, he's kicking himself. Worried about China where the government is persecuting Muslims, and the government cracked down on H&M then Nike, which had criticized China's human rights record in the past. Other reasons for bearishness: Nike's previous weak numbers, shipping bottlenecks about the world, expectations of the slowing of leisurewear, uncertainty over the Summer Olympics, plus weakness from peer Foot Locker. Instead, Nike delivered massive blow-out numbers, has a long history in China where Nike has created lots of jobs. Perhaps their brand is so big it transcends politics. Nike is up 52% over the past year. Also note that Nike criticized China's government discreetly with a statement on their website. Also, Nike deals with logistics well despite worldwide supply bottlenecks. Third, Nike sells half its products online. He will likely buy this back.

They report Thursday. The street expects a big number from their US business, but there are fears over a Chinese boycott. China is a big market for Nike. He sold this a long time ago. If Nike makes their numbers, they will be rewarded with price target boosts.

It went through the meat-grinder this week based that its human rights stance could triggers a boycott (https://www.cnn.com/2021/03/25/business/hm-nike-xinjiang-cotton-boycott-intl-hnk/index.html). Today, Nike saw an upgrade. But China is a huge market for Nike, so Nike is at risk if Beijing starts cracking down on companies criticism, even mild, against the Chinese government. It's possible that US-China relations may not improve under Biden, but we'll see.

Last night's quarterly report was mixed, but their problem is a container shortage and shipping congestion. All else is fine with Nike. Definitely, buy on this dip.

Allan Tong’s Discover Picks This powerful brand thrived during 2020’s lockdowns driven by strong e-commerce sales and ongoing support from loyal Chinese consumers. In its last-reported quarter,revenues from China soared 24% compared to only 1% in the U.S . In that period, online sales rocketed 84%. In fact, last fall Nike reached its e-commerce goals three years ahead of schedule. Read 3 Overdone and Oversold Stocks for our full analysis.

Is getting hammered in the current rotation out of 2020's winners (e-commerce retailers like this) and into reopening plays (travel, hotels).