We’re snapping up this out-of-favor stock that’s turning things around
We buy 150 shares of Nike at about $64. Following the trade, Jim Cramer’s Charitable Trust will own 1,300 shares of NKE, increasing its weighting from approximately 1.95% to 2.2%. Nike shares are going through a rough patch. They have fallen every day over the last six sessions, reaching their lowest level since June. Following much better-than-expected quarterly results announced last month, the sell-off has pushed the stock nearly 7% below its previous trading level. The quarter was not perfect; Challenges remain in Greater China and there is still some overstock in the channel. But what mattered most was seeing clear signs of progress in CEO Elliott Hill’s turnaround plan and his “Earn Now” initiative. Many agreed on the momentum of the return. Nike shares rose 6% to $74.20 the next day. In the following days, many analysts increased their ratings to buy. But the stock has trended downward since then as concerns about the health of consumer spending have hurt many stocks in this category. Nike’s crush was also a selloff at its main rival, Adidas; It fell 10% on Wednesday after its quarterly sales missed estimates, with North America the slowest performing region. While the market sees Adidas’ weakness as bad for Nike, analysts at Jefferies have a very different perspective. Adidas’ “weak momentum” in North America is a result of Nike’s recovery taking shape, they wrote in a note Wednesday. “As NKE’s order book continues to grow year over year, we are seeing retailers increasingly re-engaging with the brand, an encouraging trend that should translate into greater shelf space,” Jefferies said. Jefferies has a buy rating and a $115 price target on Nike. It’s also on the “Franchise Choice” list, which is the equivalent of a best ideas list. Jefferies’ comment about gaining shelf space in stores aligns with our thesis in Hill’s transformation plan. After years of opting for his own direct-to-consumer channel and ignoring key retail partners, Hill reconnected with companies like Dick’s Sporting Goods and Foot Locker. This pivot paid off last quarter as North American wholesale returned to sales growth, and we see Hill’s broader strategy paying off in the coming quarters. (Jim Cramer’s Charitable Trust is long NKE. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
