Editor’s note: “7 Fitness Stocks That Will Give Your Portfolio Some Muscle” was previously published in June 2020. It has since been updated to include the most relevant information available.
At long last, we’re starting to see the beginning of the to return to normal. In many states, retailers are reopening their doors. This includes gyms and fitness centers in an increasing number of areas. And after several months of quarantine-induced “diets,” many people will be eager to lose a few pounds.
In short, look for Americans to spend a lot more time — and money — on their health this summer. That will be great news for various fitness stocks.
Not all fitness stocks will enjoy an equal recovery, however. Actual gyms may remain under pressure a little while longer — at least until we see if a second wave of the virus forms later this year or not.
While it may seem like a slam dunk to buy gym and fitness club stocks, there are many options that have less risk right now.
In fact, there are a variety of fitness stocks that both can benefit from the rising trend and don’t require strict social distancing measures. Here are seven to have on your watch list:
- Nike (NYSE:NKE)
- Peloton (NASDAQ:PTON)
- Lululemon (NASDAQ:LULU)
- Under Armour (NYSE:UA, NYSE:UAA)
- BellRing Brands (NYSE:BRBR)
- Hormel Foods (NYSE:HRL)
- Fitbit (NYSE:FIT)
Fitness Stocks to Buy: Nike (NKE)
Nike has been one of the best blue-chip stocks of the recent bear market. Yes, Nike fell from $105 to $60 per share during the crash. But now, it’s already well past $100 and seemingly headed to new all-time highs in the near future.
Why has Nike managed such a swift recovery? It is, in large part, because the company has the best distribution channel of the athletic wear companies. It has a fantastic online presence, and it leads the pack with its app and other direct-to-consumer avenues.
In fact, Citigroup recently highlighted Nike as a strong pick precisely because of its best-in-class direct-to-consumer capabilities. This has allowed it to keep business moving swiftly amid the novel coronavirus. With stores closed, Nike has been able to take share from rivals that don’t have the same online presence.
Even better, thanks to owning the whole transaction from start to finish rather than sharing the economics with a retail store, Nike earns higher margins on these digital sales. Thus, it should enjoy rising profit margins as more and more customers acclimate themselves to buying Nike products from their phones. This could lead to a major sustained boost for Nike’s earnings for many years to come.
This one is a controversial name in the fitness space. Some traders absolutely love Peloton stock. It certainly performed well over the past few months when most other stocks were crashing.
Short sellers are also obsessed with Peloton. They’ve published numerous reports about the company questioning its product economics, business model and long-term sustainability.
Stay-at-home orders throw another layer of complexity into the mix as well. Now, investors must assess how quickly the demand for Peloton will fall back to a more normal level as gyms and other away-from-home fitness options return.
Many hot fitness products go through a cycle of popularity and then decline anyway. The coronavirus has supercharged Peloton’s rise, but we don’t know what things will look like in future quarters.
As it stands now, it’s still too early to have total confidence in our projections of what the world will look like after the coronavirus. Peloton could lose many of its new customers as other fitness options re-emerge.
In general, however, the safe bet is to assume that a substantial chunk of newly converted Peloton devotees will remain loyal for awhile. Peloton is probably not a stock you want to buy and hold forever. But as a trade in the fitness stocks space, the bulls have the advantage here.
Lululemon is quickly developing that same versatility as Nike. They both increasingly dominate the whole retail process, thus keeping higher profit margins for themselves. And because Lululemon’s brand is so strong, the company has had no trouble selling its products even with the coronavirus.
Sure, Lululemon stock seems very expensive, as it trades at more than 50x earnings. To a considerable degree, however, investors are treating it as a sort of technology company.
With its fantastic branding and omni-channel presence, Lululemon has crafted the same sort of mystique that Apple (NASDAQ:AAPL) has. That gives Lululemon tremendous power that you’ll miss if you’re just looking at the reported earnings numbers.
In the short run, Lululemon stock could correct again. Shares are pricey and trade right near all-time highs. Additionally, the CFO recently left, and that can sometimes make people nervous.
Longer term, however, there’s little reason to doubt that Lululemon will have a strong and growing role in the athletic wear space over the next decade.
Under Armour (UA)
Like Nike, Under Armour has short-term problems due to the loss of professional sporting events.
In the past, Under Armour has successfully used world-class brand champions such as Stephen Curry to launch itself into the big leagues.
That reliance on a few key superstars has led to trouble now, however. Under Armour hasn’t had such great luck with its recent celebrity signings. A series of marketing missteps has cost the company in both funds and momentum. And now, with professional sports shut down for the time being, it has led to a perfect storm for Under Armour’s stock.
So, it makes sense why analysts are so pessimistic about Under Armour. But shares are down from $40 in 2016 and $20 last year to just $8 now. It’s not clear how much more the bears can realistically hope to get from this decline.
Once the NBA is going again and shoe sales pick up, momentum could swing in a hurry. Under Armour has been on a major cold streak, but don’t count this player out of the athletic wear game just year.
Part of fitness is getting the right fuels. That’s where specialty foods maker BellRing Brands steps in. The company produces a variety of on-the-go healthy refueling options, including PowerBar, Premier Protein drinks and Dymatize protein powder.
BellRing stock fell pretty sharply during the March crash. That’s because it has a lot of debt, and investors dumped highly levered companies.
In an economic slowdown, many people wanted nothing to do with any heavily indebted company whatsoever. But BellRing provides products that are in high demand regardless of economic conditions. Just look at social media — people have been clamoring to get back to the gym as quickly as possible.
As investors have realized that protein bars and shakes are still on the menu, BellRing’s shares have quickly started to recover. And with shares still trading at less than 6x trailing earnings, there’s a lot more potential upside if the current reopening enthusiasm continues into summer.
Hormel Foods (HRL)
Of course, there’s more to healthy eating than protein bars and supplements. That’s where Hormel Foods enters into the mix.
The company has designed itself to be the country’s leading proteins company. It sells a vast array of protein-forward products.
These include its traditional favorites like bacon, pepperoni, deli meat and more. In recent years, Hormel has also branched out into organic and pesticide-free meats, peanut and almond butters, ready-to-eat guacamole and ready-to-eat meat and dairy products for convenience stores and other grab-and-go occasions.
For the fitness enthusiast looking to add some more natural protein into their diet, Hormel offers a multitude of products to get the job done. The company is also a growth and income superstar. It has raised its dividend for more than 50 years in a row, offering investors a fantastic income stream.
Hormel gives investors a way to bulk up both their diet and their dividend income, making for a winning combination.
Finally, rounding out the list, we have Fitbit. It’s less of a long-term investment in the fitness space at this point, but rather a quicker trading opportunity.
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is supposed to be acquiring Fitbit later this year for $7.35 per share. As of this writing, Fitbit is trading for around $6.30 per share. Thus, there should be a little more than 10% upside in a few months if and when the deal closes and Google finishes buying the company.
So why is this opportunity here? Some investors had fretted that deals in general would break due to the coronavirus, but that risk appears to be receding as markets recover. Google is good for the money in any case, and Fitbit’s products should be in high demand as people get back in shape once quarantines end.
There’s also the possibility of antitrust regulators blocking a deal. Those fears seems to be based more in concerns about Google’s size than anything specific to Fitbit, however. There’s a good chance that the deal gets done, giving Fitbit shareholders a quick 10%-plus gain.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he owned HRL stock.