Wyatt Research Week in Review: May 29-June 4

Under Armour (NYSE: UA) defeated Nike (NYSE: NKE), 104-89, in Game 1 of the NBA Finals on Thursday.
I refer of course to the shoemakers’ respective prized endorsers, Stephen Curry and LeBron James, whose Golden State Warriors and Cleveland Cavaliers faced off in the opening game of a best-of-seven contest for pro basketball’s top prize.
Curry, the Warriors’ diminutive sharpshooter with unprecedented 3-point shooting range, had an off night, tallying just 11 points on 4-of-15 shooting. James, the self-crowned king of the hardwood, poured in 23, but it wasn’t nearly enough to offset the offensive barrage of the Warriors, which had seven players score in double figures.

While James’ status among the all-time great cagers is up for debate, his position as the king of celebrity shoe endorsers is unquestioned. In December 2015, James reportedly signed the single largest guaranteed contract in Nike’s history. While Nike doesn’t comment on contractual specifics, USA Today reported that the lifetime deal is worth “significantly more” than $500 million.
Curry, who is signed with Under Armour through 2024 in a deal that includes equity ownership, used to lace up Nikes before draining 30-footers. The story of how Nike failed to re-sign the future back-to-back MVP to an endorsement deal during the 2013 offseason is an interesting read. Basically, it boiled down to a sloppy sales pitch by Nike officials and a miscalculation of Curry’s earnings potential as an elite celebrity athlete.
In other words, Nike – the company that has dominated the athletic apparel market ever since Air Jordan sneakers premiered in 1985 and made every street baller want to be like Mike – became complacent. Like the Oklahoma City Thunder in this year’s Western Conference Finals, Nike blew it, plain and simple.
Curry’s initial endorsement deal with Under Armour was announced on Oct. 1, 2013. Since then, Under Armour shares are up 78%. During that same period, Nike shares are up 49%.
Of course, that sort of comparison is reductive and doesn’t account for the myriad factors that have led Nike to outperform Under Armour over the past year.
In keeping with the Steph vs. LeBron theme, on June 16, 2015, Curry’s Warriors beat James’ Cavs in Game 6 of the Finals for the Oakland franchise’s first championship since 1975. Nike shares are up 2.5% since then; Under Armour shares have lost 11%, despite Curry leading the Warriors to a record-setting 73-9 regular season mark this year – one win better than Michael Jordan’s 1995-96 Chicago Bulls.
Therein lies the peril of investing with one’s heart or personal allegiances. While Under Armour boasts baseball slugger Bryce Harper and golf phenom Jordan Spieth on its endorsement roster, Nike accounted for 95.5% of the basketball sneaker market in 2014, according to Forbes. Michael Jordan has been retired since 2003, yet still has his own Nike sneaker line.
There’s also the question of valuation. Under Armour sports a hefty price-earnings ratio of 35, while Nike clocks in at a still expensive but much more reasonable 26. Under Armour shares also tumbled during the past week after the company issued downwardly revised guidance based on the bankruptcy of retailer Sports Authority.
Still, I’ll be the first to admit that I doubted Steph Curry’s NBA potential during his sophomore season with Davidson College, when he led the Wildcats to a surprise Elite Eight berth. He was rail-thin at the time, with a baby face that looked all of 15 years old, and to my mind he projected as a 3-point specialist without the muscle to attack the rim against the big boys.
I was dead wrong. Curry was the NCAA scoring leader in his junior year, was drafted by the Warriors as the seventh overall pick in the 2009 NBA draft, and the rest is history.
So while Nike isn’t about to relinquish its sports apparel throne even if King James is once again shot down by the Baby-Faced Assassin, I still wouldn’t bet against Under Armour continuing to chip away at Nike’s market share lead when the NBA season gives way to second-quarter earnings season.
Here are some of my favorite Wyatt Investment Research articles from the past week:
Envisioning the Berkshire Hathaway Portfolio in a Post-Buffett World – The Berkshire Hathaway (NYSE: BRK-B) portfolio got a recent tech infusion when one of Warren Buffett’s deputies pulled the trigger on a $1 billion-plus Apple investment. Is it a sign of things to come when the 85-year-old Buffett finally passes the Berkshire investment torch?
An Obscure Conglomerate Pays 4 Times Its Stated Dividend – Yahoo Finance says the dividend yield of this unusual conglomerate is 1.1% based on a stated annual dividend of $1 per share. But Wyatt Research income analyst Steve Mauzy knows better. The yield is really 5.6% and the annual dividend is really $5.05 per share – four times what the website says.
1 Gaming Stock to Buy, 1 to Sell – Consumer spending is back. The Department of Commerce revealed this week that consumer spending was up 1% in April, the largest monthly increase in more than six years. As shoppers continue to loosen their purse strings, don’t let renewed interest in this gaming stock pass your portfolio by.
Why China Is Wal-Mart’s Next Great Frontier – Despite its recent struggles, if there is any American retailer with the financial strength to claim the top spot in China, it’s Wal-Mart (NYSE: WMT).
Beware the Bayer-Monsanto FrankenMerger – If the proposed merger of Bayer AG (OTC: BAYRY) and Monsanto (NYSE: MON) is consummated, it will lower the number of players in the agriculture chemicals and seeds industry down to a mere “big three.” Other companies like Germany’s BASF (OTC: BASFY) would be left by the wayside, but there’s another way to play the industry.
Two 30% Special Dividends: Do You Know Which One to Buy? – Not every special dividend is a trading opportunity. This fact came to light last week when two disparate companies announced 30% special dividends.
How to Make 23% With an 80% Chance of Success Trading SPY – By trading options in the SPDR S&P 500 ETF (NYSEArca: SPY), Wyatt Research options expert Andy Crowder isn’t exposed to volatility caused by unforeseen news events that can be detrimental to an individual stock’s price. And recently he found an opportunity to reap big gains with a highly reasonable probability of success.
Have a great weekend!