In our recent Market Commentary piece titled “The Price of Admission” , we suggested that a significant investment opportunity was being formed. We continue to believe this opportunity exists, especially after the recent market correction. We posed that the “unique” nature of COVID-19 may have serious psychological effects such as social isolation (travel restrictions, cancelled events, work from home etc). Clearly, these issues will have an economic impact. However, history has shown that the capital markets will recover in due time if appropriate medical, fiscal and monetary actions are taken to address the near-term concerns.  

Recall, we suggested that periods of extreme volatility often creates value opportunities as falling equity prices allow investors to acquire shares of high-quality businesses trading at attractive prices. Nike Inc. is a prime example of a high-quality company with an attractive balance sheet, sound management team, and resilient cash flow generation. As active managers, we have been diligent in acquiring Nike in our client’s Core Equity and Select Growth portfolios during recent market turmoil. Nike’s strong brand and product pipeline allow the company to raise prices which bolster sales growth in both apparel and footwear. Importantly, some retailers who are seeking to boost weak sales are turning to Nike to increase customer traffic which is increasing NKE’s bargaining power as a supplier. The company is also beefing up its direct-to-consumer (DTC) channel (company-owned stores and website), particularly its e-commerce business. DTC sales are expected to grow at a high-teens percentage rate over the next few years. Over the long term, we expect Nike to continue to dominate the athletic apparel and footwear market. Also, it is important to note that the company now has a particularly strong presence in high-end footwear thanks to its marketing strength and endorsements from famous athletes.

Moreover, we believe that sticking with a long-term disciplined asset allocation and portfolio diversification plan is critical to ride out the near-term market volatility and negative news flow.

Sincerely,

Joseph Sharma, CFA
Chief Investment Officer