One of the main take aways from our methodology is that stock picking is as important as ever before. Given a rough environment, driven by focus on monetary decisions, the market is primarily in a “risk off” mood since the end of 2014, and deflationary pressure is reigning. In such an environment, stocks are the go-to asset BUT only a handful of stocks are performing well. That has a huge implication on your investment strategy.
From that perspective, we favor long term momentum stocks. Two such momentum stocks with a beautiful long term pattern are Nike (NKE) and Starbucks (SBUX). Let’s revise where both stocks stand, and whether they are a BUY at this point.
Nike’s chart does not need too much explanation, apart from the fact that the stock got ahead of itself after the summer. NKE came with excellent results in September, and the share price skyrocketed. We believe the chart signals a pullback is in the cards.
From a valuation perspective, NKE is a great stock: EPS 3.96, P/E 15.95, FORWARD P/E 12.83, P/S 1.73, P/B 4.19.
The number of outstanding shares declined y-o-y, from 863.1 at the end of 2014 to 853.3 at the end of November of 2015.
On December 22nd, NKE published quarterly results which concluded that:
- Revenues up 4% to $7.7 billion; that’s below the stellar previous quarter.
- Diluted EPS up 22% to $0.90.
- Worldwide future orders up 15%.
- Gross margin increased 50 basis points to 45.6%, primarily due to higher average selling prices, partially offset by higher product input costs and unfavorable changes in foreign exchange rates.
NKE is a great company for your portfolio. It is a long term BUY although the stocks needs a rest. A buy on any pullback.
Starbucks has performed extremely well in recent years. From a chart-perspective, though, we see that the stock has pulled back when its price deviated around 40 to 50% from its 90 WMA (the only technical indicator in our methodology). So we believe this is not the ideal timing for an entry, just wait for a (slightly) lower entry point.
From a valuation perspective, SBUX shows a good fundamental picture: EPS 1.82, P/E 33.14, FORWARD P/E 27.64, P/S 4.67, P/B 15.39.
The trend in the company’s headline figures remains up: revenue higher and earnings higher, as the number of shares goes slightly lower.
Both NKE and SBUX are great companies for ones portfolio, given the difficult market conditions. We do tend to prefer NKE, though, but timing-wise we would recommend waiting for a better entry point, as the stock rose outside its resistance line. Any pullback in NKE should be considered a buying opportunity!
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