Good morning investors!

Our goal is to provide high quality content that gives our IE+ members an EDGE in the market. We strive to not only adapt, but refine, perfect, and elevate our content week after week.

Last month we introduced our latest addition to the Investor’s Edge catalog: a monthly “Top Stocks to Watch” report. In this exclusive article we will break down 10 stocks that we are watching in the upcoming month and beyond so you can be prepared for what lies ahead.

Grab your coffee and let’s dive in.

Watchlist Performance - June 2024

First, let’s take a look at how our top stocks to watch in June performed:

By comparison, here is how the major indexes performed in June:

Overall, it was yet another strong month for our watchlists. Several of the names that underperformed were actually given hold ratings due to several concerns we had for the stock. It is always important to remember that this is a WATCHLIST and not a BUY NOW list. Many of these names are stocks we like, but whose current valuations don’t necessarily meet our buying thresholds.

You can see why we were watching these stocks and what we expected to happen here:

Top 10 Stocks to Watch - July 2024

Here is our July watchlist along with several key valuation metrics that we like to use for our stock analysis:

Nike

Nike, Inc. is an American athletic footwear and apparel corporation headquartered near Beaverton, Oregon and is the world's largest supplier of athletic shoes and apparel and a major manufacturer of sports equipment. The company was founded on January 25, 1964, as "Blue Ribbon Sports", by Bill Bowerman and Phil Knight, and officially became Nike, Inc. on May 30, 1971.

Since making record highs in November 2021, Nike has experienced a substantial decline of -58.5% due to slowing growth concerns and global economic headwinds.

Nike reported fourth quarter 2024 earnings on June 27, 2024. The company reported net income of $1.5 billion, or 99 cents per share, up from $1.03 billion, or 66 cents per share, a year earlier. However, sales fell to $12.61 billion, a 2% decrease from $12.83 billion last year.

Sales in North America were $5.28 billion, below the expected $5.45 billion, while sales in Europe, the Middle East, and Africa were $3.29 billion, and in Asia Pacific and Latin America, $1.71 billion, both below estimates.

For fiscal 2024, Nike's sales were flat at $51.36 billion, marking the slowest growth since 2010, excluding the pandemic.

The sales miss was attributed to a decline in its lifestyle business, insufficient momentum in its performance business, weak online sales in April and May, and reduced traffic in China due to macroeconomic conditions.

Nike projects a 10% sales drop in the current quarter, with ongoing softness in China and uneven global consumer trends. Fiscal 2025 sales are now expected to decline by mid-single digits, a reversal from previous growth expectations, and first-half sales are expected to drop in the high-single digits.

Over the last 5 years, Nike’s EPS CAGR is 15.6%. Nike’s forecasted EPS for 2025 is expected to decline 3.2% but analysts estimate a 4.9% CAGR over the next 5 years.

Nike’s 5 year dividend CAGR is 11.1%. The company has had stock splits over the years so the values are split adjusted. When you combine the dividend growth and price growth, Nike’s 5 year total return CAGR is actually negative at 1.4%.

When it comes to valuations, Nike is trading right at or slightly above fair value in our opinion. Nike is currently trading at a P/E ratio of 20.1x, which is below the industry average of 22.2x. When accounting for future growth, or lack there of, the forward P/E ratio is 20.8x.

Over the last 12 months, Nike has generated $6.20B in free cash flow, or $4.06 per share, resulting in a P/FCF of 18.3x. That is below the industry average of 19.0x.

When we combine both our DCF and relative value models, Nike has an intrinsic value of $68.17. With NKE shares currently trading at 74.25, that represents an 8% overvaluation for the price.

Nike has not been on our radar for a long time, mainly because of the premium the stock was demanding, meaning it was expensive. Based on the reaction to the latest quarterly results, Nike is near levels that make opening a position interesting.

We have held off so far to let the earnings reaction play out, but if shares start to show a bottoming or we begin to see a sustained move higher, it may time to put some of our cash to work in this legacy name. We never want to catch a falling knife so we want to exhibit patience here.

Edge+ members on the Discord will be the first to be notified when we make the move. A notification will be sent out immediately.

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