Multi-Nationals like Nike give you great exposure to Emerging Markets

Nike (NKE, quote) is taking emerging markets growth and it shows in the stock price.  Recently on Fast Money we were asked to talk about stocks we would buy on a pullback and to discuss levels. 

Nike_swoosh_on_the_tongue_of_a_shoe_(blue_on_white)Nike is a stock that fits the bill perfectly.  Earlier this week, Nike has been down for 5 straight days although the moves were small. This was only the second time since July we had seen this loss of momentum in the name. 

Meanwhile the stock is +52% YTD. So where would I own this stock and what’s the fundamental call? 

I would own this stock at $75 which places it right on its 50 day moving average.  On a break of this level I would load the boat back near $69.80, and add in size at the 200 day moving average which is $65.00 area.  This is where the stock re-rated from August.

Why Nike? 

This is secular global growth story due to U.S. and global wellness awareness, as well as the emerging middle class.  This is now a $75 billion industry globally with 6% growth in footwear and sporting goods expected until 2020.

Nike and Adidas have a virtual duopoly in footwear and barriers to entry for new competition will rise even further as scale issues to the business model settle in.  Both companies enjoy extraordinary pricing power, labor flexibility.

They also benefit from direct retail selling both in store and online which is adding to margins which in turn is reason to see these stocks re-rate. 

We believe these elements are NOT priced into the stock.  The valuation of Nike is fair relative to its history at 22X ’14.  Nike trades at a slight discount to Adidas and significant discount to other players like Sketchers, Puma, who trade in a mid 30’s multiple or higher. 

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