Am I the only one around here who’s a bit tired of everything being about technology stocks and metals? There are other ideas out there. Here’s one.
Especially at a time like this, with markets in such a state of indecision — unless they are crushing a whole group of stocks like the SaaS names — it’s a good time to look for collar-able stocks. I think Nike (NKE) is one.
The narrative for Nike is currently a story of a “wholesale reset” and a return to its performance roots. After years of relying on lifestyle retro models that eventually led to inventory gluts, the company is attempting to reclaim its status as a leader in technical sportswear.
A new 15% global import tariff on overseas-made products is the primary margin concern. We’ll learn more in a few weeks when NKE reports.
On the positive side, Nike enters the year in its cleanest inventory position in a few years. That allows the company to move away from the aggressive discounting of 2024 and 2025 and focus on full-price selling of new innovations. That includes the launch of the “Nike Mind” footwear line and the use of generative AI to shorten product development cycles.
Greater China remains a challenging environment due to soft traffic and promotional intensity, signs of stabilization in wholesale revenue are emerging as a key “recovery logic” for the stock. And it is this sort of tightrope NKE is walking that makes a collar a strong consideration. We get the upside, most of it anyway. But we draw a line in the sand at the start of the trade.
NKE’s fundamental ratios were wrecked in recent years. At 40x forward earnings, it is a comeback story to knock that figure way down. The 1.27x beta in the last five years speaks to a company that has been put through the proverbial ringer.
That is why price returns on a trailing basis look like this. And that’s why a collar makes sense instead of hoping to pick a bottom.
The chart I’m showing below is a weekly, since the collar example that follows it goes out just over 12 months. So a daily chart won’t be as relevant.
The chart of NKE is pretty boring, actually. Unless you are a contrarian like me. From a 2021 high of $170 down to $64 currently. That smells like a second shot at riding a NKE stock price “swoosh.”
