If there’s been a rotation into safer, more reasonably priced stocks, the trend can also reverse itself when the market is ready.
Biotechnology stocks, initial public offerings (IPOs), and hyper-priced technology issues were ripe for a sell-off after such tremendous capital gains. A rotation isn’t a breakdown in the longer-term stock market trend; it’s just a trade, and big investors wanted to book some profits.
Now some very good companies are more attractively priced, and there could very well be some decent buys if the broader stock market’s current fundamentals aren’t hit by some external shock.
The action in this market is choppy, and it’s the lull between earnings seasons. The lack of corporate reporting often makes for tough trading in stocks.
One company that I like for long-term investors, however, has come off its high by about 10%. The stock I’m talking about is NIKE, Inc. (NKE).
NIKE has a long track record of relatively consistent wealth creation for shareholders, and the company pays a dividend. Its current yield is approximately 1.3%.
According to history, this position has proven to be a good buy when it’s down. According to management, its business prospects for the rest of the year are solid. The company’s long-term stock chart is featured below:
Chart courtesy of www.StockCharts.com
Wall Street firms have been increasing their earnings estimates for NIKE going into 2015.
The company’s most recent quarter (ended February 28, 2014) was a good one. Total sales grew 13% to $6.97 billion, while diluted earnings per share from continuing operations grew four percent to $0.76.
Global footwear sales provided the biggest quarterly gain, jumping 15% above the same quarter in 2013. This was followed by a 10% gain in apparel. “Converse”-branded footwear sales grew 16% during the quarter to $420 million.
NIKE has always reported what it refers to as “futures orders.” This isn’t a firm prediction from the company on what sales will turn out to be, but it is a guide.
The company reported that futures orders for branded footwear and apparel, which are to be delivered from March 2014 through July 2014, should come to $10.9 billion, which represents a 12% gain over the prior-year period.
And excluding the impact of currencies, futures orders are up 14% in a combination of stronger unit orders and higher average selling prices.
In January, the company began paying out a higher quarterly dividend of $0.24 per share, up from the previous quarterly payout of $0.21 per share. The company needs another dividend increase in its new fiscal year and can certainly afford it, as its cash position is strong.
NIKE is a mature enterprise, but it’s still able to generate double-digit growth, and with the position down from its high, it may be coming into the “buy” zone for long-term investors. (See “Four Companies to Watch as Stock Prices Reset.”)
Stocks, along with sentiment, continue to be trendless in a market still trying to digest last year’s capital gains.
The current environment is a great time to be researching new quality investment positions. I view NIKE as one of them. The company should finish off its current fiscal year with a very good quarter.