A little over a year ago, I did an article about seven fitness stocks to buy for the pandemic and beyond. While we’re not out of the woods yet, people have spent the past 20 months prioritizing the things in their lives that are important to them.
Not surprisingly, for a lot of us, fitness is and will always be a big deal. For me, it’s trying to get in a long walk each day. For others, it’s running triathlons. What you do doesn’t matter. It’s just that you do something to fight the passing of time.
In my article from last year, one of the seven stocks to buy was the Global X Health & Wellness ETF (NASDAQ:BFIT). It’s up 22% over the past year, having dropped somewhat since Sept. 23. While that’s not as good as the S&P 500, which is up 25% over the same period, most investors ought to be very happy with this kind of return.
It got me thinking that it might be good to do an article that focuses on seven stocks to buy from the actual ETF:
- Nike (NYSE:NKE)
- Lululemon (NASDAQ:LULU)
- Dick’s Sporting Goods (NYSE:DKS)
- Celsius Holdings (NASDAQ:CELH)
- Foot Locker (NYSE:FL)
- BellRing Brands (NYSE:BRBR)
- Nautilus (NYSE:NLS)
Stocks to Buy: Nike (NKE)
If you invested in Nike during the March 2020 correction at its low of $60 and then sold at its 52-week high of $174.38 in August, you would have earned yourself a 191% return over 17 months.
Of course, we know that market timing doesn’t work. As a result, anyone who bought into the world’s biggest footwear company at the end of 2020 is sitting on a 7% return.
Over the long haul, Nike will continue to be an excellent proxy for the sports and leisure industry.
However, investors can expect more volatility in the short term as the company sorts through the supply chain mess. On its Q1 2022 earnings call, CFO Matt Friend highlighted that it takes 80 days to get products from Asia to North America. Before the pandemic, it was half that time. Time is money.
Since mid-July, its plants in Vietnam have lost 10 weeks of production due to Covid-19 lockdowns. Likely, these plants won’t be back to full production until the end of the year. So, as the CFO said, the next few quarters will be bumpy when it comes to inventory.
The upside of all of this is that investors will have plenty of opportunities over the next year to buy NKE stock at a reasonable price. Currently, it trades at 5.3x sales. That’s considerably higher than its 10-year average of 2.9x sales.
At some point, investors will get an opportunity to buy Nike at $130, where it traded for a good part of 2021’s first half.
In five years, you won’t remember that Nike faced a supply shortage.
On Sept. 23, Lululemon announced that it would become the official outfitter for Team Canada for at least the next four Olympics, starting with the 2022 Beijing Winter Games and ending with the 2028 Summer Games in Los Angeles.
Lululemon CEO Calvin McDonald is Canadian, and I am too. It’s a big deal when a company takes on the responsibility for outfitting hundreds of athletes, coaches and support staff.
“Supporting these incredible athletes as they prepare to compete on the world’s largest sporting stage and achieve their goals is a privilege,” McDonald said in a news release.
Indeed it is. And it’s one that Luulemon has earned by continuing to make quality athletic and non-athletic apparel that is both attractive and comfortable.
As Toronto-based independent retail analyst Bruce Winder told the Canadian Broadcasting Corporation, it’s a “game-changer.”
It sure is.
In September, LULU reported strong Q2 2021 results that included a 61% increase in sales to $1.5 billion with a 120% increase in adjusted operating earnings to $299.2 million.
Lululemon expects revenues to be at least $6.19 billion for the year with adjusted earnings per share of at least $7.38, both higher than analyst expectations.
I thought Calvin McDonald’s hiring was a brilliant move in July 2018. Three years later, the CEO continues to deliver the goods. Shareholders better hope he stays a long time.
LULU stock has gained over 200% since his hiring.
Stocks to Buy: Dick’s Sporting Goods (DKS)
I recently recommended Callaway Golf (NYSE:ELY) as one of 10 cyclical stocks to buy when the market has a significant correction. A big reason for putting ELY on the list was the growth spurt golf is currently experiencing. Lots of people, including beginners, are playing more now than they’ve ever played.
Dick’s is one retailer that’s benefiting from golf’s growth.
“The golf industry continues to grow. And as the number one premium golf retailer in the world, our golf business have been tremendous at both DICK’s and Golf Galaxy,” said Dick’s CEO Lauren Hobart in its Q2 2021 conference call. “We’ve leaned into our leadership position, particularly in Golf Galaxy, where we’ve rolled out industry-leading TrackMan technology to enhance the fitting and lesson experience in over 80% of our stores. Based on the positive response we’ve seen, we will expand on TrackMan to all remaining stores during Q3.”
To meet the increased increase in golf, Dick’s is launching a new prototype store for its Golf Galaxy chain. The retailer understands that customers want a genuine experience when they enter its stores. The Golf Galaxy Performance Center ought to provide that.
As for DKS stock, it currently has a free cash flow (FCF) yield of 14%. I consider anything above 8% to be in value territory.
Celsius Holdings (CELH)
In late July, I suggested that investors holding CELH might want to take some profits off the table. Trading at 32.6x sales, I thought a better buy would be in the $40s. Of course, we know in hindsight that never came to pass. It now trades near $100, doubling on the year.
In my defense, I did say that I thought it would generate $1 billion in annual sales in the future. I also said in November 2020 that I thought it would double in 2021.
I’ve concluded that Celsius is going to be one of those stocks that are seemingly always too expensive to buy. And then, five years from now, the company’s drinks will be as common as Lululemon t-shirts, and the market cap will be double or triple where it is now.
Of six analysts covering CELH, five are bullish on it and one neutral with a median target price of $100.40. The consensus estimate for 2021 earnings is 18 cents. In 2022, that jumps to 42 cents.
Stocks to Buy: Foot Locker (FL)
Just like Dick’s Sporting Goods, Foot Locker made it onto my list of cyclical stocks to buy after the Great Correction.
Foot Locker’s stock recently was panned by Bank of America analyst Lorraine Hutchinson. The firm reinstated coverage of the footwear retailer with an Under Perform rating and a target price of $45.
“We think supply chain issues and lapping the high levels of stimulus dollars create a difficult catalyst path for the stock,” SGB Media reported the analyst writing in a note to clients.
Hutchinson expects Foot Locker’s earnings in 2022 to be 15% lower than the consensus estimate due to supply-chain issues faced by Nike and other companies. However, on the same note, she pointed out that the retailer will benefit from Nike’s focus on a few large wholesale accounts.
Long-term, with $695 million in trailing 12-month (TTM) FCF, FL remains a value play worth owning for the long haul.
BellRing Brands (BRBR)
In August, BellRing Brands Executive Chairman Robert Vitale bought $300,000 in BRBR stock, paying an average price of $29.10 a share. There are plenty of reasons why executives sell stock. There’s only one reason they buy.
In this case, it’s doubly true. That’s because Vitale is the CEO of Post Holdings (NYSE:POST), which spun off its Active Nutrition brands PowerBar, Premier Nutrition, Joint Juice, and Dymatize in December 2019. It plans to distribute a chunk of its 71.2% ownership stake in BellRing to Post shareholders in the first half of the 2022 calendar year.
So far, Vitale hasn’t been on the right side of his buy. However, the company’s latest results suggest the future is bright.
On the top line, BRBR grew Q3 2021 sales by 67.8% to $342.6 million. Further down the income statement, BellRing grew operating profits by 68.3% to $51.5 million, good for a 15% operating margin.
For all of 2021, it expects sales of $1.265 billion at the midpoint of its guidance, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $233 million.
As far as I can tell, the markets aren’t giving BellRing the due it deserves.
In the first nine months of the fiscal year, it generated FCF of $145.1 million, up from $25.9 million a year earlier. On an annualized basis, BRBR has an FCF yield of 17%.
I’m confident Vitale’s bet will reap the rewards down the road.
Stocks to Buy: Nautilus (NLS)
I have followed Nautilus’ ups and downs for years. In May 2020, I discussed the pros and cons of owning Peloton.
“Companies like Nautilus (NYSE:NLS) and Nordic Track have been around for years. They’ve seen their sales ebb and flow as consumers’ desire to get fit at home has risen and fallen,” I wrote in 2020.
“While it’s possible that the coronavirus will permanently change the way we get in shape, I suspect people might run more outdoors in good and bad weather.”
Earlier this year, Nautilus was trading at a nosebleed valuation of 2x sales.
On the one hand, that’s a ridiculous multiple for a company that’s had more ups and downs than the Jacksonville Jaguars. On the other hand, however, Nautilus’ TTM revenue of $735 million is higher than it’s ever been. That’s got to count for something.
The biggest concern for Nautilus right now is keeping inventory levels high while the demand is still there.
History has shown that if you buy under $10 and wait long enough, NLS will hit $20 or $30. So those who bought in February in the $30s were playing with fire.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.