EDUCATION
Learn About DRIPS
Start a DRIP
Glossary
FAQ's

DRIP INVESTING
News and Views
DRIP of the Week
DRIPs A to Z

REFERENCE
Subscribe!
Free Trial!
Advertise With Us
Terms of Service
Disclaimer
Contact Us
About Us


 

Friday, 11/28/2003

Just Drip It!
By Nich Sheldon
NKE - Nike, Inc.

Company Description

NIKE, Inc. based in Beaverton, Oregon is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly owned Nike subsidiaries include Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Bauer NIKE Hockey Inc., a leading designer and distributor of hockey equipment; Cole HaanŽ, which designs, markets, and distributes fine dress and casual shoes and accessories; and Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories. [Source: Company Press Release]

[Source: Company Press Release]

Reasons to Invest:

Looking at the title alone, I wonder how many people knew that this week's Drip of the Week was Nike (NYSE:NKE)? I mean you have to admit it ties in nicely with their Just Do It! slogan. Now I confess, while the title is clever, there is far more to Nike than a catchy slogan. In fact, a quick look at Nike's daily, weekly, monthly and even quarterly chart and I would be astonished if you DRIP investing guru's don't see what I see. While the charts convince me that this is worthy of my portfolio, I am also intrigued by their recent dividend boost, and their quarterly figures.

A Look at the Figures

Fourth quarter revenues were reported to have increased by 8 percent to $3.02 billion. Net income before an accounting change rose 20 percent to $261.2 million. Nike reported that the increase in revenues reflect an increase in European and Asian Pacific markets, due to a strong consumer demand and more favorable exchange rates. Their 20 percent increase in net income was said to have been a reflection of improved gross profit margins.

Another attractive aspect about Nike's stock is that the company leads its competitors in market capitalization by more than 15 billion. Their revenue growth is at an astonishing 8.10 percent, which is eye-catching when considering Reebok's revenue growth of 4.50 percent.

Over the past four weeks Nike was ranked in the middle of its industry at 48th out of 99 - 99 being the best. This is nearly 50% lower than its 13 week rating of 86th, but I suspect this lower figure is a result of Nike's chart being so overextended and the stochastics indicator, signaling that the stock is overbought. Even though we are considering entering a DRIP investment on an overbought signal, I still deduce that this stock has further potential for upside (more on this in the technical analysis).

Reuters Investor, has a low risk rating on Nike, as the stock passed five of their six risk alert tests. The only test that they did not pass, was their shorted shares test, which measures their short term expectations of the stock's price. From what I gather from the charts, Nike should dip a little here in the next couple of week's, but this dip should be minor and only be caused by bulls seeking profits. Should this dip occur, this could produce a nice entry point for you drip investors who like to buy the dip.

Technical Analysis

I am not sure how many of you long-term investors are subscribers of an online charting service, but I would recommend that you either find a free service or subscribe to one that allows you to look at your portfolio candidates in greater detail. More importantly, I would recommend that you are able to look at the moving averages on these candidates. The reason being, a colleague and good friend of mine has just recently introduced me to a technique that is really easy to follow. I am a stickler for following the 10, 50 and 200 daily moving averages (DMA's), especially when searching for worthy long-term play recommendations. However, my colleague, Mark Phillips (of OptionInvestor.com - a very useful pay site), has just told me that he not only follows the 10, 50 and 200-DMA but he also uses thea 20-DMA when searching for long-term stocks.

For example, if you pulled up a daily chart of NKE, and plugged in the simple 10-DMA and the 20-DMA you would see that the 10-DMA has just broken over the 20-DMA. If you look at the 10 and 20- DMA over the course of this past year you would see that in January, the 10-DMA broke over the 20-DMA and a bullish trend followed. When the 10-DMA broke below the 20-DMA, a bearish trend took place. Low and behold in February the 10-DMA broke back over the 20-DMA and trended this way all the way into May. In this short time period the stock moved more than 10 points. I bet you can see where I am going with this. If the 10-DMA is over the top of the 20-DMA this generally indicates that the stock is going to trend higher and vice versa. As noted, the 10- DMA has just broken over the 20-DMA on the daily chart and this is a bullish indication.

You should note that us long term investor need not focus as much on a daily chart than we need to focus on a weekly and monthly chart. Moreover, if you pull up a weekly chart of NKE (with the 10 and 20-DMA's drawn in) then you would see the same bullish trend higher. The 10-DMA is resting over the 20-DMA by a margin of more than four points, making me suspect that there is still further upside potential despite the fact that the stochastics indicator would suggest that the stock is overbought.

If you were to look at a monthly chart, it is easy to demise that the same trend is apparent. The 10-DMA is resting over the 20-DMA and the stock is trending higher.

Besides looking at the daily moving averages, I also like to look at regression channels. I marked the October 2003 low of 38.53 as the bottom of this channel, and marked today's high of 67.48 as the top. Once the regression lines are drawn it is easy to see where the stock is hypothetically headed. If the current trend continues, and I must note that this is extremely optimistic, we could see Nike as high as 90 points by July of 2004. Just something to think about when you are considering this DRIP recommendation.

Dividend Information

On Monday, November 24th, 2003 Nike boosted it's quarterly dividend by 43 percent. This is the company's second dividend increase in as many years. The new quarterly dividend is now set at $0.20 per share per quarter. The payable date for the dividend is set for January 5th, 2004 to shareholders on record as of December 15th, 2003. The annual dividend rate is $0.80 per share, which comes out to a dividend yield of 1.19 percent.

In respects with dividend percentage growth rates, Nike estimates that their dividend percentage growth rate over the next year will be approximately 12.50 percent, which is a little extra incentive.

Closing Thoughts

If you are worried about the short-term dip that is suspected to happen to Nike over the next few weeks, don't be. This is common for stocks that have been on a bullish run higher for so long. Profit taking is going to occur. Short-term investors are going to cover their profits and then seek new entries once profit taking is over. If NKE follows its regression channel and its 10-DMA manages to stay above its 20-DMA then I would not feel like I was being optimistic in saying that Nike is headed higher.

Also keep in mind that the holidays are among us. I'm not sure how many of you have children, but the newest shoes are usually on children's Christmas wish lists. Besides, when else do parents splurge on $100 sneakers for their kids, especially those kids that are outgrowing their shoes with each passing quarter? In fact, now that I think about it, besides the power tools I have already told my wife that I "have to have" for Christmas, I am in need of some new shoes - GRIN.

This ends another exciting episode of the DripAdvisor.com Drip of the Week. Stay tuned next week, as we will spotlight another stock worthy of the DripAdvisor.com limelight.

Until Next Week,
Nich Sheldon
Editor

Broker Recommendations

Strong Buy         5
Buy                7
Hold               2
Sell               0
Strong Sell        0

Brokers Covering  14


DRIP Information:
Shares to Qualify = N/A
Auto-reinvestment = Yes
Accept Foreign Accounts: Yes
Temper Enrollment: Yes

Min/Max Investment = $250,000/Year


Reinvestment Fees - 
Dividend investment fees: 5% to $3+3c/share
Cash investment fees: $5+3c/share
Auto reinvestment fees: $2+3c/share


Transfer Agent:
First Chicago Trust
800-756-8200


Corporate Headquarters:
One Bowerman Drive
Beaverton, OR 97005
Phone: (503) 671-6453
Fax: (503) 671-6300



 
 

Copyright 2003 DripAdvisor.com

Do not duplicate or redistribute in any form.
          Privacy Statement   Disclaimer   Terms Of Service