The start of every year brings about new resolutions — less drinking, better eating habits and more exercising. There’s a reason why many so-called resolution businesses are in the spotlight in January. With that in mind, investors may be wondering, what are some of the best fitness stocks to buy?
I am looking for names that have exposure to the trends in fitness. The type that will not only see an influx of sales during the holidays and at the start of the year, but will also help whip the public into shape.
Granted, in order for customers to actually improve their health, they must be the ones to push themselves. But talk to anyone who uses certain workout equipment, and there is an element of motivation within those products.
Whether readers disagree with that or not, there’s no denying that athletics and fitness businesses continue to rake in cash. With that said, let’s look at seven fitness stocks to buy:
- Nike (NYSE:NKE)
- Lululemon Athletica (NASDAQ:LULU)
- Nautilus (NYSE:NLS)
- Peloton (NASDAQ:PTON)
- Apple (NASDAQ:AAPL)
- Garmin (NASDAQ:GRMN)
- Under Armour (NYSE:UA, NYSE:UAA)
Fitness Stocks to Buy: Nike (NKE)
We have to start the list with the fitness kingpin itself: Nike.
Nike is a dominant sportswear company, commanding a market capitalization of $227 billion. This makes the company more valuable than a number of well-known tech stocks, and, in my view, it has quickly accumulated its massive size.
Counting big-time athletes like LeBron James, Mike Trout, Christiano Ronaldo, Neymar, Kevin Durant and others as customers, it’s the clear leader when it comes to using big names to market its products.
The company continues to lean on its direct-to-consumer omni-channel model. That not only boosts its profitability, but also keeps the revenue flowing during tough times — like a global pandemic. Add in its business in China and Nike reaps a twofold benefit: diversifying its sales and generating additional growth.
Finally, in mid-December, Nike delivered a top- and bottom-line earnings beat, with revenue beating estimates by more than $700 million. While its dividend yield is considered small by most — at 0.8% — it’s not far below the 10-year yield. Further, the company has raised its payout for eight straight years and averages a near-12% annual boost over the last five years.
Lululemon Athletica (LULU)
Lululemon Athletica had a tough run years ago. Bulls were ready for the company to blossom into another version of Nike, but a series of missteps and inconsistent execution continually weighed the company down.
But boy has Lululemon hit its stride. The premium apparel maker has branched out from simply leggings and yoga apparel to athleisure and other workout clothes. With its premium price target, Lululemon is able to generate strong margins and profitability.
Like Nike, Lululemon has benefited from its push into omni-channel operations and its growing momentum in China. Both companies used these two elements to quickly recover sales during the pandemic in the first half of 2020. Online sales kept the business in motion, while sales in China recovered more quickly than the rest of the world.
Lululemon’s latest foray into the connected workout culminated with its $500 million acquisition of Mirror. We’ll see how the company is able to further integrate into that business and potentially generate subscription revenue as a result.
Speaking of connected workout devices, no one does it better than Peloton. If Lululemon has any meaningful desires with Mirror — and after dropping $500 million, I think it does — then it’s to become the next Peloton.
I love Peloton for one major reason: It’s a premium razor-and-blades business model.
The company isn’t just giving the razor away and hoping its customers buy the blades, though. Instead, it’s selling the razor at a hefty premium and then charging for the blades.
In effect, Peloton’s customers are making an investment; an investment in themselves and an investment in their workout equipment. Maybe bulls are wrong, but to many investors, that investment will increase the likelihood that customers will continue to pay for Peloton’s subscription offerings (the blades) after buying its exercise equipment (the razor).
With robust demand driving strong revenue and earnings growth, look for Peloton to keep on growing. The product certainly creates motivation and gives a sense of camaraderie with its users.
Peloton may have very well blended hardware and software to disrupt the fitness space.
Just as Lululemon would like to see its Mirror unit become the next Peloton, Nautilus would like to see its business become the next one as well. That’s exactly what bulls are betting on too, as shares have risen from less than $1.50 at the March lows to more than $20 now.
Shares remain more than 32% below the recent high, even though Nautilus delivered a blowout earnings report in November. Earnings of $1.04 per shares crushed estimates by 70 cents, while revenue grew by more than 150% year-over-year.
Nautilus has been a major beneficiary of the work-from-home movement. It makes a plethora of workout machines and equipment, touting brands like Bowflex, Schwinn and Nordic Track.
The company had this to say in the most recent quarter:
“We sold our commercial brand, Octane Fitness, allowing the team to be laser-focused on growing and enhancing our at-home connected fitness experiences. We hired a Chief Digital Officer who has implemented large-scale digital experiences at some of the world’s top technology companies to lead our JRNYTM and e-commerce teams and accelerate our ongoing digital transformation.”
If successful, Nautilus stock could really take off.
Some readers may disagree with Apple being on the list of fitness stocks to buy. That’s because it has multiple product lines that are not focused on fitness or athletics, and many of those businesses are main drivers for its revenue.
However, it would be foolish to ignore Apple when it comes to this realm.
First, Apple is the top player when it comes to smartwatch market share. The company continues to push the envelope with its smartwatch capabilities, while also increasing the number of Apple Watch offerings it has.
Catering to multiple price points, Apple will try to capture more market share with this approach. All of that plays into the company’s latest strategy: Apple Fitness+.
In mid-December, the company launched its Apple Fitness+ service featuring curated workouts across multiple categories like yoga, strength, cycling, walking, rowing and more.
At $9.99 a month or $79.99 a year, Apple is looking to fitness to help drive its Services growth. It’s also including Fitness+ in its Apple One bundle, which is $29.95 a month.
Elsewhere in the connected-fitness-device world is Garmin. Many know Garmin for its old GPS devices that we stuck on our cars’ dashboards and may be confused by its placement on a list of fitness stocks. But there’s more to the company than just GPS devices for vehicles.
Garmin still makes GPS devices now. But when faced with the adapt-or-die situation, management chose the former. While it still has other business units, the company has become well-loved in the fitness community.
The company makes several products, including GPS cycling computers and indoor cycling training equipment. However, it also offers a wide range of smartwatches, including some on the high end of the fashion spectrum.
Despite the bumpy year of 2020, analysts expect steady growth for Garmin. Consensus expectations call for 7% revenue growth and 7.5% earnings growth this year. Further, the charts look great as shares hover just below the 52-week highs.
Under Armour (UA, UAA)
Last but not least on our list of fitness stocks to buy is Under Armour. Unlike Nike and Lululemon Athletica, this stock has not been thriving. While Nike and Lululemon are up 42% and 50% over the past 12 months, respectively, UA stock is down 10%.
Further, while the two leaders are close to or at all-time highs, Under Armour remains more than 50% below its all-time high. That’s not a good look. So why is it on the list?
Under Armour stock has had a wave of momentum. Despite the poor returns, shares are up 85.5% in the past six months and remain at multi-month highs. That’s better than both Nike and Lululemon, by the way.
The company is looking to turn the corner from 2020, when it saw a decline in both sales and revenue. In 2021, Under Armour should return to profitability and generate double-digit revenue growth. While it stands as a quality name among athletes, it has to prove itself to investors. Let’s see if it can do so in 2021.
On the date of publication, Bret Kenwell held a long position in AAPL.