In 2014, the Boys From Brazil Will Score for Nike

In 2014, the Boys From Brazil Will Score for Nike

By Justin Sharon, Minyanville Staff Writer

Given the still-sorry state of the economy in Greece, perhaps I am tempting fate to suggest that a stock named after its goddess of victory might be a top-performing equity in 2014. Yet Nike (NYSE: NKE) can score big again next year, not on account of ancient Athens, but thanks to an increasingly modern nation some 6,000 miles to the south.

Brazil will host soccer’s World Cup, a month-long quadrennial extravaganza of the planet’s most popular sport set to be seen by some 3.2 billion people. This tournament, along with the 2016 Olympics also occurring in Rio, provides a perfect catalyst for further upside in the stock.

To be sure, Nike is neither an undiscovered story nor a pure fĂștbol play. As the globe’s largest maker of sporting goods, newly added to the Dow, it needs no introduction. But let’s start with a few facts.

1) Shares have risen every year for the past half decade, and are hitting the highest level in their history even as I write this article. (An approximately 72% stock price surge over the last 12 months puts the S&P 500 Index, itself no slouch over the same period, to shame.)

2) The company recently reported a 22% jump in annual net income and did more than $ 2.4 billion of business in China, allegedly an Achilles’ heel for its athletic shoes.

3) Equity analysts came away from an early-October investor day in Oregon enthused about prospects for margin expansion, fewer foreign currency headwinds, improved pricing power, leaner inventories, and a lower tax rate, amid a myriad of other catalysts.

Meanwhile the monumental reach of this company, which outfits everything from golf to tennis and also owns Converse, can even be seen in the plight of poor Perry Ellis (NASDAQ: PERY). On Wednesday, with markets scaling fresh summits, that sorry stock tumbled 22.96% to post the worst performance on all of the Nasdaq. Its sole bright spot? The Nike Swim brand this fashion firm has a licensing agreement with.

But a World Cup occurring in soccer-crazed Rio, right next to its iconic statue of Christ the Redeemer, is manna from heaven for marketers. Amid such priceless publicity, expect the “Swoosh” to score more.

Soccer is already becoming an increasingly important component of Nike’s business, generating $ 1.93 billion in sales and growing at a 7.7% pace. Long gone are the days of American fans having to catch marquis overseas matches on crackly old shortwave radios, or schlepping out to dodgy bars in the Bronx in search of games on week-old tape delay (I speak from experience). No longer dismissed as the “USA’s biggest babysitting service,” the sport is now both a spectator and participatory pastime in this country, where NBC’s high-def English Premier League offerings attract ever-increasing audiences.

Nike supplies official shirts to our own national team, along with perennial powerhouses England and, yes, record five-time winners Brazil. Its sponsorship of the brilliant Brazilians got off to a rocky start in 1998 amid allegations that it forced the country’s star striker, Ronaldo, to play through an epileptic seizure in the losing battle for the World Cup Final against France, another current Nike client. Yet there were clearly no hard feelings, for at the next tournament in Japan, he top-scored to lift the trophy. Indeed for fiscal 2014 alone, Nike is expected to generate $ 1 billion worth of business in Brazil.

A latter-day Ronaldo, Cristiano Ronaldo (pictured here), the preening Portuguese prima donna who is named after Ronald Reagan and has 64 million Facebook (NASDAQ: FB) followers, shrugged off an injury in time to take the field clad in Nike’s Clash Collection cleats for the recent World Cup qualification playoff against Sweden in Lisbon. Other superstars who don Nike include Mario Balotelli, the Italian whose grass allergy hasn’t stopped him from becoming one of the world’s top players, and Brazil’s wonder kid Neymar, who is such a hot-shot in Nike’s Hypervenom Phantom boots that Barcelona recently broke the bank for his services.

Are there any potential injury-time own goals for investors to be aware of? You certainly can’t blame it on Rio, but any sudden increase in either labor or input costs could always give Nike an unexpected kick in the grass. Yet its stock is still a peerless way to play the rebounding consumer, flush with ever more discretionary dollars, both in North America and the emerging BRIC economies. (A term coined, incidentally, by ex-Goldman Sachs (NYSE: GS) executive Jim O’Neill. He just happens to be a rabid follower of Manchester United (NYSE: MANU), yet another Nike customer, and one that yesterday reported record revenue and operating income.)

So there we are. To paraphrase a Nike slogan, Justin Did It, selecting the sneaker stock as his top pick for 2014. In terms of predictive powers, I may be no match for the clairvoyant Paul the Octopus, who now sadly sleeps with the fishes but at the 2010 World Cup demonstrated an uncanny accuracy in correctly calling results involving both Germany and eventual winner Spain. (Each outfitted, it must be said, by Nike’s archrival Adidas (OTC: ADDYY).

Yet invest in this stock, and I feel confident soothsaying that the land of Carnival will have you “partying like it’s 1999,” the year Brandi Chastain famously revealed her sports bra — made by Nike — in front of 90,000 soccer fans at the Rose Bowl. Prince’s best-known song was actually written in 1982, a year notable both for the birth of Wall Street’s biggest-ever bull market and the World Cup appearance of an especially talented Brazilian team, Samba kings, who were by common consent the finest side never to have won the World Cup. Next year, expect Nike to again outperform Mr. Market, ably assisted by boys from Brazil.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga.

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