Tuesday, April 16, 2024

Don’t Jog – Run to This Massive Opportunity

Don't Jog – Run to This Massive Opportunity

By Lucas Downey, Contributing Editor, TradeSmith Daily

So often, investing is unexciting... mostly passing time until a special situation lands in your lap.

But those exciting times do come around. And when they do... saddle up. Because those golden-hour moments don't hang around for long.

A great example was when the investing crowd, feeling defeated by a prolonged correction, couldn't imagine a breakneck rally last November.

However, in TradeSmith Daily, we saw a monster opportunity shaping up. And that marked a significant bottom for stocks.

Whenever a pivotal moment like this flashes, we pound the table hard in an effort to get you to see what we see... a big opportunity for a grand-slam trade.

The great news is that right now, another fat pitch is coming down the plate.

One incredible company, Nike (NKE), has been battered so hard the past year that it's becoming a major oversold opportunity.

In fact, we see one signal today that hasn't flashed in over 10 years. And as you'll learn, history points to a gorgeous forward picture.

But before we sprint into this ultra-rare setup, let's first review the current landscape for Nike.

Because to the untrained eye, the stock appears worn out...

Nike Shares Are Stuck in a Long Downtrend

Great traders know not to catch falling knives — companies in long downtrends.

Sometimes these downtrends come from poor business prospects. Maybe revenues are slowing... Or worse, the business itself is called into question.

This is why it's mission-critical to only consider contrarian trades like these on reliable, best-of-breed companies.

By being patient and using data, every now and then we get the chance to take advantage of Mr. Market's overreactions. We can buy super-high-quality stocks at rarely seen, rock-bottom levels...

Nike, the apparel company best known for its iconic sneakers, is one such rare jewel in the marketplace. (Disclosure, I own shares of Nike.)

One look at the performance from November 2021 could have you thinking this stock is a "no touch."

After all, who wants to get in front of a freight train heading due south? The stock has fallen over 40% from the November highs:

But share price alone doesn't tell us much. As Warren Buffett famously said, "Price is what you pay. Value is what you get."

So let's take a look at Nike's value picture.

Currently, the latest P/E sits at 27. While that is a tad more expensive than the overall S&P 500's 25 P/E, let's do what smart investors do and not focus on today. Rather, let's focus on what's coming in the future.

When you review the forward P/E of Nike over the next 12 months, the value picture gets clearer. The P/E drops to a more manageable 23.4.

Even better, go out another year and the price to expected earnings falls to 20.5. This falls in the lower channel of historical P/E for the company.

Even more, let's also keep in mind that we're talking about a company with a rich history of sales and net income growth.

From 2019 to 2023, sales raced higher from $39.1 billion to $51.2 billion. Net income kept pace too, over the same period, climbing from $4 billion to $5 billion.

With healthy fundamentals like this, you'd imagine the company rewards its shareholders with a slice of that profit pie.

And it does. The company has been paying and growing dividends for years, which is where our signal study comes into play.

One Ultra-Rare Buy Signal is Flashing for Nike Stock

TradeSmith readers know I love dividend growth stocks. If you recall, back in October I pounded the table on Dollar General (DG) as a fantastic value play.

Shares have rocketed nearly 29% since.

And what attracted me to DG then is the same thing getting me excited about Nike today.

NKE is what dividend investors refer to as a "dividend achiever." That means the company has paid and consecutively raised its dividend for at least 10 years.

What's special about this is the fact that as a stock's share price drops, the dividend yield increases.

Currently, the forward dividend yield sits at 1.66%. When you contrast this to its 10-year average of 1.15%, that's a 44% premium!

Below to the right, you'll see the 10-year average as a straight line, with the current forward dividend near the top of the channel:

OK, now I'm getting excited.

Getting paid handsomely to own a high-quality stock is one thing. But let's take this info a step forward and consider what history stays about this rare yield.

I went back and studied all month-end dividend yields for Nike. Then I selected all periods where the yield was at least 1.6%... to help us identify if now is as special as it appears to be.

In fact, back to 1998, the yield on Nike has been greater than 1.6% only 26 times. Here's the awe-inspiring forward performance afterwards:

6 months later, shares race 19.7% on average
12 months later, the stock sprints an average 37.6%
24 months later, you're looking at an average jump of 62%

This is one of the best setups I see right now, and it sheds light on the power of evidence-based research.

Not only is Nike a great company historically... it's on massive sale, offering one of the juiciest yields ever in its history.

If you ask me... it's time to just do it.

This is what TradeSmith is about. Using cutting-edge data and analytics to bring you outstanding research you can't find anywhere else.

And this is just the tip of the iceberg of income opportunities you'll find as a member.

The easiest way to get started with TradeSmith is with our flagship portfolio management software, TradeStops.

If you liked what you learned here today, let TradeSmith's algorithms take a look at your portfolio with our seamless syncing tool, which instantly connects to your brokerage of choice.

And from there, TradeStops will show you the strong and weak spots with our proprietary Health tool – showing you which stocks are in solid uptrends or deep downtrends.

Plus, in the Premium version — which I highly recommend — it'll show you how to rebalance and optimize your portfolio in seconds.

If you're ready for a smarter, more productive portfolio, click right here to learn how you can become a TradeStops Premium member today.

Regards,

Lucas Downey
Contributing Editor, TradeSmith Daily

P.S. I want to quickly address the huge volatility we saw from Friday through Monday...

In true Age of Chaos fashion, stocks hit a brutal rough patch on Friday as Iran threatened to retaliate against Israel.

Then, over the weekend, the attacks came... and on Monday, Israel announced its intention to fire back. And right on cue, stocks turned lower again.

Here's why I mention this...

The word from our friends at InvestorPlace, helmed by 40-year growth investing expert Louis Navellier, is that we should expect more chaos out of the world and markets – not less.

But Louis and a seasoned market analyst have been working hard preparing their readers for what's to come.

See what they've been up to – why May 1 and the U.S. presidential election are intimately connected – right here.

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Tuesday, April 16, 2024