Nike swishes back

“Whilst some of the anxieties around losing market share to rivals, like Under Armour and a resurgence of competitor Adidas have been real, I think that they are a little overdone. Nike is still comfortably a solid growth business, having recorded now the 28th straight quarterly increases.”


 

To market to market to buy a fat pig Stocks were up again. You remember the book from your childhood titled “The Little Engine That Could”. Various versions are over 100 years old, and involves a much smaller train engine that pulls a long bunch over a steep hill, saying all the way to the top “I-think-I-can, I-think-I-can.” Once the little train engine crests the hill and heads down, it says “I thought I could, I thought I could.” You know the story as “The Little Engine That Could”.

The Big Dow Jones that Could is still in I-Think-I-Can Mode. In other words, not quite there yet. And by there, I mean 20 thousand points. Whilst new levels are fun to reach, breach and stay there and beyond, they are really just a function of long term profits exceeding the past and inflation over time. There is nothing psychological or otherwise about a level. The old index of blue chip industrial stocks that are said to reflect the landscape of industrial American got close, no cigar though – 19,987.63 was the intraday high reached at the get go.

The index fell back a little over the course of the day, ending the session at 19,974, up 0.46 percent on the day. I suspect that all things being equal, and with the decent results overnight from the biggest laggard in the Dow, Nike, that the index may assault that level. What? These are not Normandy landings or any other such event, it is a level people!!! Wiki has a *nice* entry for Closing milestones of the Dow Jones Industrial Average. 1000 was first reached in November 1972, 2000 in January of 1987. 10,000 of course in May of 1999, when everyone was fearless. 15 years to double from 1000 to 2000, more than that (we are nearly there) this time around. From 4000 to 8000 took a mere two and a half years, the roaring 90’s.

There is something called the “theoretical” all time high (if you scroll to the end of the article above), in which all the components are measured against their 30 stock component intraday highs. i.e. If Microsoft and Apple, Nike and Caterpillar, Home Depot and Cisco, Coca-Cola and Goldman Sachs were all trading at their day highs (during trade yesterday), the index would actually have breached the mark, and been at 20 thousand and 65 points. Alas, not everything goes up in a straight line together, winners and losers are kept separately on different boards.

CNN Money has a very useful Dow 30 Constituents board. Caterpillar the best this year, Nike the worst this year with Coke the only other noticeable loser. Anything on that list that is under 14.63 percent up for the year is an index underperformed, AMEX, Apple, Boeing, Cisco, Disney, Du Pont, GE, Home Depot, Intel, JNJ, McDonald’s, Merck and Microsoft (just), Pfizer, Procter & Gamble, Travelers and Visa. All Dow Jones under-performers. More than half of the index prices have underperformed, as the index was led higher through the year by oil stocks and financials (and associated), Caterpillar, Chevron, Goldman Sachs, JP Morgan Chase and then one outlier, UnitedHealth (diversified healthcare and insurance business), are all above 30 percent up YTD.

So there goes, a summary of what could have been, what has happened and what may be today. As it stands, as I write this, the Dow futures are a fraction higher, we will just have to wait for now. The other indices? Well, they also closed in on record territory (a few points away now), the broader market S&P 500 added just over one-third of a percent to end out the session at 2270 points, the nerds of NASDAQ clocked an intraday all time high, up nearly half a percent to 5483. You see, the numbers are meaningless unless you can associate with them, 20 thousand has a nice ring to it, 5500 less so.


 

Back where home is, stocks were nowhere near the all time highs, emerging markets have lagged US markets. Rates and growth prospects have seen to that. Stocks did rally nearly a percent as a collective in a broad based rally, only the precious metal stocks lagged, both the gold and platinum mining indices were the noticeable losers on the day. There really was not much corporate news to speak of really, I guess the time of the year has everything to do with it.

Sappi and Aveng reached new 52 week highs, Sibanye was trading at a 52 week low, the stock has more than halved in just over three months, it certainly has been the worst of times for them. Growthpoint, Bidvest and Mediclinic were at the top of the majors pile, all up over 2 percent, whilst there were only a handful of stocks down in the Top40, in any meaningful way, Kumba, South32, Hammerson and Investec down three-quarters of a percent and beyond. For the record, stocks closed at 50,343 points, up 0.93 percent on the day. Our all time highs are from late April 2015, another 9 odd percent to get there I am afraid, and that is in Rand terms.


 

Company corner

Nike reported numbers last evening, for their second quarter, after the bell had rung for the close. It was a beat by most metrics that matter for folks that look at the headlines. I learned something new (which is always a good thing) yesterday, the chief executive, who is essentially a Nike lifer, Mark Parker was on the design team with Tinker Hatfield. So? Both of them actually were considerably good track athletes at university (college), where Tinker actually held the pole vault record at University of Oregon, where he was coached by Phil Knight’s mentor and co-founder of Nike, Bill Bowerman.

Ah-ha. So, there is a theme here, all these fellows were once quality athletes at a regional level. Nike founder Phil Knight himself was coached by Bowerman and boasted a 1 mile best of 4 minutes and 10 second. Put that in your waffle shoe and run it. If Bowerman were still alive, he would be 106 next year, alas his time was up way before the tech bubble burst, he was much older and helped shape the Knights and Parkers, the Hatfields and co., the people that are Nike today.

Back then it was Blue Ribbon Sports (you must read the book Shoe Dog: A Memoir by the Creator of Nike), and they sold other shoes, a company that would eventually become Asics. My point is that the company management have all lived as athletes in the business, and have seen it grow sharply over the years to a 30 billion Dollar plus annual revenue company.

Nike has a slightly different cycles to many other businesses, their second quarter ended at the end of November, rewind 6 months and you come up with an April year end. Revenues for the quarter were 8 percent higher to 8.2 billion Dollars, diluted earnings per share rose 11 percent to 50 cents for the quarter. The company was pretty aggressive in their buyback in the quarter, buying 900 million Dollars in stock, as part of the 4 year 12 billion Dollar repurchase program.

So far, the company is at 3.1 billion Dollars, just over one-quarter of the way to the buyback target. For a reference point, at the market close last evening, the market capitalization of the business was 86 billion Dollars. So they are looking to, when the program ends, buy back around 10 percent of the company market cap as it exists now. That is pretty phenomenal, and what it does (provided all the shares are retired) is boost the earnings per share on the ones that remain behind. The same company earnings on fewer shares in issue.

The group does around 27 percent of all their sales in footwear in North America, 15.5 percent in apparel in North America (a little equipment sales) for a grand total of 44.6 percent North America. So, essentially it is easy to see why the analyst community see this as a home base company. Meanwhile (back at the ranch as they said in the old days), total sales in China exceeded 1 billion Dollars in quarterly revenue, up 19 percent on same currency sales across that territory. Western Europe was also strong, reporting same currency sales of 11 percent more than this time last year. Good strong growth in their two next biggest territories, which is encouraging, I am pretty sure that there has to be some currency headwinds at some stage.

From a profits point of view, Europe was hit by currencies, a strong Dollar definitely impacting on group margins too. Currencies are almost impossible to manage, damned if you do, damned if you don’t is the sense I get, at least from the viewpoint of the analyst community. Whilst some of the anxieties around losing market share to rivals, like Under Armour and a resurgence of competitor Adidas have been real, I think that they are a little overdone. Nike is still comfortably a solid growth business, having recorded now the 28th straight quarterly increase.

Not only that, I suspect that some of the gizmos that we see (no shoelaces need to be tied ever again) will become more mainstream. Wearable tech. The technology really does change, just look at your latest and older shirts, shorts and shoes, and you will see that this is definitely the case. We continue to accumulate what is a well priced stock of an incredible business with great runway ahead, buy!

The anxieties over future orders seem to have dissipated a little, I suspect that there will be a little momentum for the stock in the coming days and weeks. And who knows, the laggard of the Dow Jones may well be the best catalyst for an assault on 20 thousand points for the Dow Industrials.


 

Linkfest, lap it up

Looking for places to go, with your hard earned cash? You may have to shell out more than usual here, some beautiful pictures over at Bloomberg – Best Photography of 2016. Ha ha, you have to love the rich people playing croquet in Napa Valley!

We take so many meaningless photos nowadays as the cost is relatively zero, and we can delete as many as we want. It wasn’t always so, photos were a fine art back when the digital era didn’t exist. So … the WSJ explores The Best New Ways to Scan Your Old Photos. What you waiting for, get cracking during the holidays.

Bummed that your internet speed is not what you want it to be? South Korea wins again – Average internet speed by country as of 1st quarter 2016 (in Mbps). If you are rich enough to have a fibre line, you are better than most of the average speeds around the world, there is always an upside, right?


 

Home again, home again, jiggety-jog. Stocks across Asia are mixed, stocks locally have started mixed. Hey, who cares, the main focus will be the Nike numbers and Dow 20K later today. Or tomorrow. Or next week. And hey, there is a UK GDP read tomorrow!


 

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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