Revisiting the Global Sports Stocks Portfolio

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With the 2014 World Cup nearing its conclusion, I thought it might be a good time to revisit the Global Sports Portfolio, a mock portfolio of 16 sports stocks I created almost two years ago to the day. May the best stock win.

The most important question to answer is how these sports stocks performed over the past two years. For comparative purposes, the SPDR S&P 500 (SPY) and Vanguard FTSE All-World ex-US ETF (VEU) achieved cumulative total returns of 51% and 39% respectively through June 30. Any self-respecting stock picker would aim to outperform the indices, so the target here is 49% — five percentage points higher than the average of the SPY and VEU combined.

How’d we do?

Pretty good, actually. Out of 16 stocks, only three were in negative territory, nine beat the SPY, and a whopping 11 outdistanced VEU. Together, the 16 sports stocks achieved a cumulative total return of 53.3%, almost 10 percentage points higher than the indices. Even using the better-performing SPY as the benchmark — which wouldn’t happen in the real world because 50% of the sports stocks are international in nature and would be benchmarked as such — would have left a 270 basis point victory.

I’ve studied sports stocks for many years, and I’m always amazed that no one has created an ETF or mutual fund to track their performance.

First, a quick rundown of the portfolio I created:

sports stocks portfolio

Now let’s take a closer look at the biggest winners and losers over the past two years.

Sports Stocks — Hits

There’s no question two of the biggest winners were Under Armour (UA) and Nike (NKE), which together delivered more than 200% in cumulative total returns in just two years. Their intense rivalry has brought positive attention to both their stocks, with major sporting events such as the World Cup and London’s hosting of the 2012 Summer Olympics adding fuel to the fire. Not to be forgotten is Adidas (ADDYY) whose stock has gained a more modest 48%.

The other big area of success within the global sports stocks portfolio is media. Sports broadcasting is big business these days and two of the biggies — ESPN and the CBS Sports Network — are both making significant contributions to their parent companies’ bottom lines. Cowen and Company analyst Doug Creutz suggests that ESPN’s return on invested capital is somewhere around 48% thanks to the $5.50 per month it gets from pay TV subscribers across the country. In fact, the analyst believes Disney (DIS) is a rather ordinary company without its vaunted sports property.

I once argued that Disney should spin off ESPN in order to maximize value for shareholders while forcing the rest of the business to shape up. It’s been a year and a half since I made that opinion, and while I still believe it’s a good move for shareholders I doubt it’s going to happen given how well DIS stock has performed the last couple of years.

Perhaps the better alternative is for CBS (CBS) to do the spinning. Its cable networks, which includes the sports network, delivers 27% of CBS’ operating profits from only 14% of its revenue. It too is a cash cow like ESPN, but not quite to the same degree.

Sports Stocks — Misses

Easily the biggest disappointment when it comes to these 16 specific sports stocks is Lululemon (LULU), whose share price was just under $60 two years ago. The lifestyle retailer had just delivered first-quarter results that included 25% same-store sales growth and a 41% increase in operating profits. To suggest it was on a roll is putting it lightly. Former CEO Christine Day was a Wall Street darling, appearing in many interviews to talk about her leadership.

But then things begun to unravel. One issue after another surfaced, providing LULU shareholders with a level of uncertainty they hadn’t experienced since it became a public company in 2007. Within two years, Day was gone, replaced by former Burton CEO Laurent Potdevin, who’s in the process of revitalizing a brand that lost its way. I personally believe LULU stock will bounce back, but not before the company resolves its internal squabbles between founder Chip Wilson, management and the board. While it has been a big loser over the past two years, I expect a more positive result in the next two.

As for the other two loser stocks, Dick’s Sporting Goods (DKS) is definitely a much bigger surprise than Billabong (BLLAY). Billabong’s been in a prolonged death spiral the last few years and is lucky to get a second chance. Meanwhile, DKS stick has lost almost 5% at a time when many of its suppliers were ripping it up. It seems illogical until you look at some of its peers, most notably Hibbett Sports (HIBB). Both HIBB stock and DKS stock are down 19% year-to-date, compared to 7% on the plus side for the S&P 500. Sporting Goods stores are going through some choppy waters at the moment, but they always perform in the long term.

Sports Stocks — Bottom Line

With the exception of Lululemon and Dick’s, I’ve got very little to complain about when it comes to my global sports portfolio.

My only regret is that I included an ETF in the portfolio as a substitute for Anta Sports (ANPDY) which trades over the counter. According to Bloomberg, Anta’s stock has doubled on the Hong Kong Stock Exchange over the past two years, compared to a 2% gain for the low-volatility ETF.

Despite these disappointments, the results have been very satisfactory. I look forward to revisiting the portfolio in two years’ time.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2014/07/sports-stocks-nke-ua-lulu/.

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