Nike (NYSE:NKE) is a global brand that receives high demand from several generations. This is not likely to change anytime soon. Therefore, it’s easy to buy Nike stock on major dips. The world is currently going through the worst economic test of all time, yet it is close to its all-time highs.
This is the good news. Why? It means that Wall Street still has complete faith in the Nike team and investors are not willing to sell their shares. They did throw a small fit because of an earnings miss, but that is a knee-jerk reaction to a headline.
However, at these altitudes, this is not an obvious starting point for new positions.
There is support below $93 per share, but if for whatever reason the stock drops below that level, it could trigger a bearish pattern for another $8 drop from there. Either of those two would be opportunities to buy shares. The stock rallied 74% out of the March crash. This was an emphatic statement by the bulls — and it makes the bottom there bulletproof.
If for whatever reason Nike stock revisits those lows, it would become a blind buy.
Nike Stock Sits on Top of Solid Covid-19 Ground
Fundamentally the stock is not cheap because it currently has a 61 price-earnings ratio. But these days, this metric may be misleading. That means it’s best to table that judgement tool for at least a few more quarters. We have to remember that the world stopped working completely. A disruption this massive needs time the work itself out of profit-and-loss statements.
As we recently found out in the U.S., the process is not going to be smooth, and there might be setbacks.
The good news is that China seems to be on track in its recovery, and it makes up a significant portion of Nike’s business. Nike has been in business for almost 60 years so it has survived several major macroeconomic shocks. It has also thrived through its fair share of specific controversies. And every time it proves its critics wrong and comes out even stronger than before.
The upside of having stock market corrections is that they usually open the door for opportunities into great stocks like this one. While I would not be racing into full positions at these levels, Nike is definitely on my shopping list for the next dip.
But I may not need to wait. Instead of owning shares outright, I can use options to profit from Nike’s excellence now.
Alternative Strategies to ‘Buy and Hold’
Traders can sell the October Nike $80 put and collect almost $2. Unlike buying shares and hoping for rallies, this will deliver profits. All this trade needs to win is for Nike stock to stay above $80. The worst that could happen is to own the shares at a 20% discount from current prices. Then, the break-even level would be $78.
For this stock to lose $80 would mean that the whole stock market has had another issue. Alone, there’s no imminent disaster in Nike stock. In fact, it continues to defy gravity. The retail sector has been under pressure for a decade and it all started with the havoc that Amazon (NASDAQ:AMZN) created.
Nike figured out how to adapt, so it continues to win in spite of all the challenges that arise. NKE stock is up 140% in five years whereas the SPDR S&P Retail ETF (NYSEARCA:XRT) is down 12% for the same period. Investors should stick with this winner for the long haul.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities.