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News
Is Amazon a best-buy for the holidays?
News
China stocks end mixed despite PBoC announcement
News
Asia stocks rise on prospects of Fed easing hikes
News
HP joins the tech layoff spree
News
Will the euro give the bulls 200 reasons to smile?
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Best Buy shares spike amid upbeat Q3 print

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Asset Watch

Is Nike a buy for patient traders?

 

Tuesday, October 3 2022

Nike’s stock plunged by nearly 13% on Sep. 30, bringing the market leader in sports apparel down by roughly 50% year-to-date (YTD). Moreover, with inflationary headwinds reducing Nike’s first-quarter net income by 22%, CFO Matthew Friend said the company will “aggressively liquidate” old inventory to make room for its fall and winter collection. As a result, the strategy could further weigh on Nike’s profit margins.

 

However, with great dispersions often leading to great reversions, could Nike be a relative outperformer in the months ahead?

When analysing the Nike/SPDR S&P 500 ETF (SPY) ratio, Nike has underperformed in the S&P 500 for eight of the last 10 months. However, an identical underperformance occurred in 2016, and the streak stretched to nine of 10 months in 1997 (the vertical rectangles).

 

Yet, in 1997, Nike outperformed the S&P 500 by nearly 7% over the following six months. After the 2016 drawdown, Nike outperformed the S&P 500 by more than 7% over the following seven months. With history on the retailer’s side and S&P 500 seasonality poised to turn bullish in early/mid-October, Nike could offer a solid-risk reward proposition once sentiment shifts.

 

The Nike/SPY ratio’s monthly RSI is the most oversold since 2000. Therefore, it’s been more than 20 years since Nike has lagged behind the S&P 500 to this extent. Furthermore, since Nike is the global leader in sportswear with a 15% market share, will long-term traders be rewarded for their patience?


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