NKE Stock Is My Top Pick for 2016
NIKE, Inc. (NYSE:NKE) just bounced off a new all-time record-high on the stock market in the face of a lot of challenges to broad market investor sentiment, but can the run in NKE stock continue?
With the interest rate cycle about to change, this market is digesting the reality, along with worrying about Chinese economic data and spot oil prices. But this will fall by the wayside come the fourth-quarter earnings season. The global economy is still led by the U.S.
With rising rates comes a rising cost of capital and continued upward pressure on the dollar. Accordingly, capital-intensive industries like utilities and resources are more likely to underperform.
In a market that has already gone up in anticipation of economic recovery, I think buyers in this market should be focused on existing winners. These are the stocks that have advanced on their own fundamentals in a flat market—Nike is one of them.
The chart for NKE stock is featured below:
Chart courtesy of www.StockCharts.com
Despite its maturity as an enterprise and its $100-billion stock market valuation, Nike is still a double-digit growth company and that’s important in a slow-growth world. Institutional investors are paying up for those companies that provide earnings growth. Nike has proven to be an institutional favorite and it’s likely to stay this way medium-term.
Quarter after quarter, this footwear and clothing company has delivered the goods in terms of its comparable financial growth. Around the world, consumers save up for a pair of the latest Nikes. It’s a commanding brand that is not only recession-resistant, but very much a growth business, as indicated by the company’s current operational forecast.
Shortly, Nike will report its results for its fiscal second quarter of 2016. In its most recent quarter, global sales increased five percent to $8.4 billion (14% excluding currency) and, most importantly, diluted earnings per share soared 23% to $1.34.
Then the company announced a new, four-year share repurchase program of $12.0 billion to commence at the end of fiscal 2016. The company is currently finishing up $8.0 billion in share repurchases. This was recently announced with a 14% increase to the company’s quarterly dividends and a two-for-one share split, effective December 24, 2015.
To say that Nike isn’t delivering the goods to investors would be unfair.
Here’s the Bottom Line on Nike Stock
I like Nike because of its financial outlook, its track record (both operationally and on the stock market), and its attractiveness to institutional investors in a rising rate environment.
Management does a good job of telegraphing and reporting on the company’s performance. There are good prospects for rising dividends on a forward basis and the position is highly liquid, which should improve even further after the upcoming share split.
In a real sense, NKE stock can be considered a special situation. This large-cap company is still growing on a global basis, it’s managing currency fluctuations, and it still expects earnings per share growth to be in the mid-teens until fiscal 2020, with total sales expected to grow to $50.0 billion.
Nike stock is a top, large-cap pick to watch for new investors in a slow-growth world.