On Sunday, sporting apparel giant Nike (NYSE:NKE), along with rivals Under Armour (NYSE:UA, NYSE:UAA) and Lululemon Athletica (NASDAQ:LULU) announced that they will temporarily close their locations in the U.S., along with other international markets.
Combined, these three companies operate almost 800 stores in this country. Of course, this has negative implications and as a result, NKE stock plummeted nearly 12% on Monday.
Adding to the woes, wide-scale panic absolutely gutted the benchmark indices. For instance, the S&P 500 shed 12% in the March 16 session, while the Dow Jones Industrial Average dropped nearly 3,000 points — down nearly 13%. Unfortunately, panic is simply the name of the game right now.
What’s especially troubling for NKE stock and other blue-chip names is that the markets must digest contradictory news. Earlier, the U.S. Federal Reserve slashed benchmark interest rates to near zero to instill confidence in the markets. Despite this, the markets flashed red from the get-go.
Later, President Donald Trump warned that the crisis could last into late summer. Logically, this did nothing to help lift sentiment for Nike stock. For the time being, the apparel maker’s store closures will be between March 16 and March 27.
Despite the shock to the system, Nike’s move isn’t unusual under the circumstances. A few days ago, Apple (NASDAQ:AAPL) surprised everyone by shutting down all store locations outside China. As with other companies’ measures, the closures will last until March 27.
Of course, I don’t take these developments lightly. Nevertheless, as I examine the situation, I’m actually more encouraged in my long-term view of Nike stock. It’s hard to see the forest for the trees at present, but it’s certainly there.
NKE Stock Has Incredible Upside Once the Smoke Clears
As I and several of my colleagues at InvestorPlace have noted, the downturn is an incredible opportunity for building long-term wealth. The trick is to not focus on the immediate pain but where you will be 5 to 10 years from now. Looking back, I’m confident that you’d wish you could return to this once-in-a-blue-moon moment.
Well, let me gently remind you that this moment is now.
Specifically for NKE stock, the underlying company enjoys enviable brand loyalty among its international consumer base. As you know, Nike has endured many controversies in the past, such as the ever-present criticism of labor exploitation. Yet consistently, consumers have overlooked these issues to purchase margin-rich apparel and footwear.
Before Americans were consumed with daily statistics of the coronavirus from China, they obsessed over one man: Colin Kaepernick. A few years back, Kaepernick created huge controversy when he knelt during the national anthem. Although he used this method to protest police brutality against communities of color, the optics created public division.
Like politics, it’s usually not a good idea for a company to pick sides on a contentious social issue. Nevertheless, Nike ran a very high-profile advertisement featuring Kaepernick. Naturally, conservative groups were enraged, calling for a boycott.
Sure enough, during the time period when the ad ran, Nike stock turned volatile. Initially, the fallout appeared justified. In its arrogance, Nike spat on its conservative customers. Yet when the facts came in via the earnings report which included the ad’s impact, the company delivered resounding results. After that, shares skyrocketed for a two-month period.
I forecast a similar event to occur with the coronavirus panic. Even better for Nike, this is a global headwind, not a company-specific one.
It Will Get Better
Still, I understand the hesitation regarding Nike stock. If people remain fearful, no amount of brand loyalty will get them purchasing (expensive) discretionary items.
However, I want to reassure my readers with critical perspective. We Americans have been through far worse than this and we don’t even realize it. Just over a decade ago, the H1N1 swine flu infected millions of people here, killing 17,000. Sadly, this included 1,800 children.
Does anybody remember the hoarding of toilet paper and disinfecting supplies back then? I sure don’t.
Certainly, this is no reason to grind the global economy to a halt. I think the absurdity of all this will eventually hit home with people. So, please don’t panic and do consider the longer-term outlook of Nike stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.