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Rebound Diamonds: Why Nike and Lululemon Are Stealing a Spot in My Portfolio.

Updated: Jul 15

Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.

 

KEYPOINTS:

🔑 Discount Buys: Nike & Lululemon down big, but poised for major comeback. High growth potential trumps checklist for these buys.

🔑 Brand Power: Investing in industry leaders at a discount. Strong brand, financials & growth outlook fuel my bullishness.

🔑 Long-Term Play: Patience required! Holding these stocks for 3-4 years to maximize returns on these rebound plays.


 

Hey everyone,


Today I want to talk about a recent portfolio decision that goes against some of my own investment principles. As you know from my previous posts on building a winning portfolio, I typically stick to a strict checklist when picking stocks.


But sometimes, opportunities arise that are too good to pass up, even if they don't tick every box.

Enter Nike and Lululemon. These are two brands I love. I wear their products, I know their target market (because I'm a part of it!), and they're both leaders in their respective athletic apparel spaces.


Image: thestreet.com

Lately, their stock prices haven't been so inspiring. Nike is down a whopping 58% from its all-time high, and Lululemon isn't far behind at 41% down.


Here's where the "rebound play" strategy comes in. I believe both companies are primed for a comeback in the long run.


Why am I bullish?


  1. Rebound Potential:   With significant price drops, there's a clear path for growth, especially considering their historical highs. My calculations show a Compound Annual Growth Rate (CAGR) of 25% for Nike over the next 4 years and 21% for Lululemon over 3 years – both exceeding my portfolio's targetted return rate of 15-21%.

  2. Decent Fundamentals:   Beyond the price drop, there are solid reasons for optimism. Google search trends and website traffic are on the rise, valuations seem reasonable, and both companies boast positive cash flow. Plus, they have established themselves as powerhouses in their niches, creating a kind of economic moat around their business.

  3. Brand Power:  Nike's athlete endorsements and marketing muscle are unmatched, while Lululemon enjoys a unique position in the luxury activewear market, similar to Apple in the tech world.


Nike's higher cash position (compared to their peers) allows them to secure endorsement deals with top athletes for many years to come.


4. International Growth:  Both companies are seeing success in expanding their global reach, which is a major plus for long-term gains.


Downsides to Consider:


1.Market Saturation:   The overall athletic apparel market isn't experiencing explosive growth, so Lululemon's ability to capture market share is crucial.



2. Lululemon's Customer Service:   While their products are premium, their Google store ratings leave room for improvement.


The Takeaway:

Investing in Nike and Lululemon is a calculated risk. They might not perfectly align with my usual checklist, but the potential for a strong rebound, coupled with their brand strength and solid fundamentals, make them compelling additions to my portfolio.

This experience reminds me that even with a set investment strategy, there can be exceptions. Here, the chance to own these industry leaders at a discount, with high growth potential, outweighs some of the initial red flags.


Key Reminder:  This is a long-term play. Patience is key. I shall not be swayed by short-term market fluctuations and will hold these stocks for the designated timeframe to maximize returns.


What do you think? Are there any rebound plays you're considering? Share your thoughts in the comments below!

1 comment

1 Comment


Guest
Jul 11

The risk may be whether their market share in China grows or falls (see Nikes revenue 2021-2023) and whether local brands can claim more market share. Mass market and mid-tier sports products are indistinguishable performance wise, so at the end of the day its how much the logo is worth. I buy a lot of Nike stuff because their outlet in IMM has great prices during sales, but you'll never catch me paying full price for Nike.

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