Many US-based global mega-caps will be hit hard if the trade dispute between the US and China becomes a full-fledged war. Chipmakers such as NVIDIA (NASDAQ :), Apple (NASDAQ 🙂 and Tesla (NASDAQ 🙂 are likely to be the first in the line of fire, but they will not be the only China-inspired stocks that have been wounded in hostilities
The sportswear giant, Nike Inc. (NYSE 🙂 is such a consumer stock, vulnerable in a trade dispute between the two largest economies in the world. And the company is already being punished by the ongoing dispute, with concerns that rising rates on imports from China will threaten its brand and reduce its sales
After reaching a record high of $ 90 last month, Nike's stock has fallen by around 7% since the US and China applied titular rates to each other's imports, escalating their fight to a new level. Although the shares are still about 18% higher than 12 months ago, they fell for the third consecutive session yesterday to close 0.6% at $ 82.16.
But if we dig a little deeper, it becomes clear that the risks to & # 39; s for the world's largest sportswear company are not that great. Nike has consistently diversified its production from China – a strategy that makes it less exposed to trade rates on Chinese imports. About ten years ago, for example, China was the most important producer of shoes. Today, Vietnam has that title. When you combine clothing and shoes, Nike made about a quarter of its products in China in 2018.
Another way of looking at Nike's relative strength in this dispute is the collapse of the company. Of the more than $ 36 billion, the majority – nearly $ 20 billion – came from abroad where Trump's rates don't matter. That being said, Nike and other brands that are dependent on China to varying degrees will still get the feeling and are likely to pass on their cost increases to consumers. But in our opinion, this setback is not big enough to become bearish on Nike shares.
Nike & # 39; s power behind China
In addition to this short-term negativity that hits a number of solid consumer stocks, Nike has a lot of wind in its back that supports the power of its stock price. The profit was strong, the brand remains the most powerful in the sports world and the digital transformation creates a new momentum.
Nike Inc.
Over the past 11 years, 93% of the time has achieved quarterly earnings, supporting a equity rally that has more than tripled the market since 2008, according to Bloomberg data. At the forefront of this great advantage is the & # 39; Triple Double Strategy & # 39; of the company, which means that it doubles its resources in terms of digital properties, accelerates innovation and product creation and broadens one-to-one connections
As a result of these efforts, Nike is gaining a larger market share from its main European rival, Adidas (OTC :), even in its home market, while at the same time performing better in Asia's major growth markets.
In the last quarter, Nike sales increased by 7%, or 11% excluding currency fluctuations. Sales in the Greater China market showed robust growth of 19% on an annual basis. The online revenue, the main battlefield for all retailers, grew 36% year-on-year and reached $ 1 billion for the very first time.
Bottom Line
Nike is one name that we strongly recommend when you see the current weakness of the stock price accelerate due to the fear of trading in China. In a deteriorating economic environment, it will be difficult to expect similar earnings from equities in the last decade, but it is a solid dividend-paying stock that you could put into your long-term portfolio and earn a growing income stream without too much worrying about daily volatility.
