Nike (NKE, quote) is an anchor stock in the Emerging Money Global EM Index (EMGEI) and also a key component of the Emerging Money Global Consumer Index (EMGCI).

Nike_swoosh_on_the_tongue_of_a_shoe_(blue_on_white)In many ways Nike represents two key themes we see in the current investment climate:

  •  This is a dominant global brand that is benefiting from growth in emerging markets and also global wellness awareness.
  • Nike is a company that is trading at a premium multiple to its longer term history, and this valuation must be justified through continued above trend growth or investors will punish the stock at the next miss.

Nike doesn’t report until March 20th but even after a pullback the stock trades at around 25x current earnings and 24x estimated 2014. This is a significant premium to the previous level the stock traded at over the period from 2007-12 (18x).  While this multiple is rich to its own history, Nike still trades at a discount to its peers (28x) and its main global competitor Adidas.  Weighing valuation and growth with return on equity (ROE), Nike is a superior play to more expensive smaller players like Sketchers (38x) and Puma (34x). 

After what has been an 8% pullback off the highs the stock is oversold when measuring RSI (29) and appears to be reasonably well supported around $69.00, the 200mda.  The move lower has the stock back to levels of late Sept after Nike reported a big beat on their fiscal Q1 '14 earnings.  Many investors have been waiting for a pullback to either reengage or buy the stock outright.  

We continue to believe this is an iconic brand growing with the world around it, operating in an effective duopoly with Adidas (quote).  Both of these companies have size and scale to drive pricing and push cost effectiveness with suppliers.

The Emerging Money Global EM Index (EMGEI) was 1.64% this week.


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