A big leadership change at Nike; Overwhelming feedback from my readers on Adobe, Expedia, and Estée Lauder; Blindly chasing performance is a sure route to ruin

1) Well, it finally happened – apparel giant Nike's (NKE) CEO John Donahoe is stepping down...

Regular readers will recall my e-mails on August 9 and August 12 when I took a look at the company and its beaten-down stock and concluded:

I'm inclined to stay on the sidelines with Nike's stock at these levels for two main reasons...

1. First, the stock isn't particularly cheap – trading at 23.8 times this year's earnings estimate of $3.12. Even after the nearly 60% drawdown from the 2021 peak, that valuation is still too rich for me.
2. Second, as long as the guy responsible for Nike's woes – CEO Donahoe – is still in charge, I have little confidence that he'll be able to admit his mistakes and fix them. I would want to see a change in leadership – or at least clear evidence that current leadership is on the right track to fix issues.

While I wasn't convinced NKE was a buy then, I also added:

But here at Stansberry Research, my team and I at our flagship Stansberry's Investment Advisory newsletter will keep an eye on Nike. If and when we think it's time to buy, our subscribers will be the first to know.

As promised, we did more work...

After a deeper look with my team, we concluded there was a compelling risk-reward setup (in particular because Nike was likely to replace its CEO). So we recommended the stock to Investment Advisory subscribers two weeks ago in the latest monthly issue. (Subscribers can see the full write-up and specifics on the recommendation right here). As we concluded:

We have no doubt Nike will recover. And with [Pershing Square Capital Management's] activist push and a potential CEO change, we're even more optimistic.

Sure enough, after yesterday's close, Nike announced that Donahoe is finally out. This Wall Street Journal article has more on the story: Nike CEO John Donahoe Stepping Down After Rocky Tenure. Excerpt:

Nike leader John Donahoe will retire as chief executive next month after nearly five years at the helm, capping a tenure marked by a series of missteps that caused the sneaker giant to lose ground to competitors.

Elliott Hill, who in 2020 retired as the company's president of consumer and marketplace, will succeed Donahoe as president and CEO starting Oct. 14, Nike said Thursday. Donahoe will also step down from the board of directors.

Donahoe took over at Nike in early 2020, and as Covid shifted shopping habits he set out to change the way the company sold shoes. Nike cut ties with longtime retail partners like Foot Locker, DSW and Macy's and tried selling more merchandise directly to consumers...

Nike's focus on boosting online sales led to multiple restructurings that drew the ire of many employees, who felt the company's moves were eroding the culture of innovation that long separated it from the competition. Donahoe conceded that the company misstepped, in part by moving too quickly to phase out retailers.

As you would expect today, NKE shares surged in reaction to the news – they were up as much as 9% this morning.

Looking ahead for Nike, my team and I at the Investment Advisory are already doing research and tapping our networks to learn more about the new CEO and what direction he might take the company.

We'll share our latest thoughts with subscribers in our next monthly issue... and these folks will be the first to know about any changes in advice with the stock.

If you aren't already an Investment Advisory subscriber, don't miss out on the best ideas from me and my team. As part of a special presentation, you can learn how to become one and take advantage of a 30-day money-back guarantee – plus gain instant access to the entire portfolio of open recommendations – by clicking here.

2) Wow! More than 100 readers took the time to vote on which of the three beaten-down stocks I highlighted in yesterday's e-mail – software maker Adobe (ADBE), online travel company Expedia (EXPE), and global cosmetic maker Estée Lauder (EL) – they would like me to take a closer look at.

Thank you – I love hearing from my readers!

The vote was clear: roughly 60% wanted to learn more about Adobe, with the balance equally split between Expedia and Estée Lauder.

So I'll start my analysis of Adobe on Monday, but there were enough votes for the other two that I'll take a closer look all of them next week.

3) Many readers were kind enough to not only vote, but also share some thoughts...

Here are some folks' comments related to Adobe (I'll share ones related to Expedia and Estée Lauder when I write about those companies)...

Leon A. wrote:

First of all, I'd like to say thanks for all the insight and knowledge you share here. I appreciate your straight-to-the-core and no nonsense analysis.

I'd like to see your deep dive on Adobe. Having spent 9 years in advertising agencies, I cannot imagine working life without the Creative Suite. However, with the rise of AI image generators, my knee-jerk reaction was that this could be very [grim] for Adobe. But beyond the advertising world, after the initial hysteria, I believe the disruption will creep slowly rather than consume everything all at once, giving companies like Adobe valuable time to harness the technology. In fact, we've seen them showcase some AI best-use-cases in the past few years. So at the moment I really feel it could go both ways for them.

Sending warmest regards from Germany.

Thomas W. had similar concerns:

Can you address your thoughts on the effect [that] AI might have on ADBE as its competitors encroach on its business using AI?

Russ S. added:

Thank you for the daily e-mails and market insights. I appreciate the work you do and enjoy your personal updates, especially climbing (I grew up in Colorado and was an avid climber).

As far as the stocks, I am interested in Adobe. With more of the software companies going to subscription / service agreements, it seems like it would have the most upside and endurance despite economic downturns.

My second choice is Estee Lauder, again because I think long term people tend to purchase cosmetics / skin care products and I know the products are popular among my family and friends.

Expedia I think is too sensitive to the economy and travel is cyclical, so it would be my third choice.

Thanks again and keep up the great work.

4) A number of readers said that none of the three stocks looked interesting, especially since I wrote yesterday that all of them were trading at double the revenue and earnings multiples that I was expecting/hoping to find.

For example, Jay G. wrote:

It would appear that almost every stock is trading at double the expected multiple. Don't you see a reset of all of these price-to-earnings multiples coming at some point?

To be clear, I don't know whether any of these stocks might be worth buying until I do more work.

For now, they clearly pass the "five-minute test" – meaning I didn't immediately reject them.

So next, I'm going to put no more than an hour of time in each of them – taking a closer look at their historical financials and learning more about why their stocks have fallen out of favor.

At that point, I'll decide whether they're interesting enough to warrant a much deeper dive. That involves reading the company's latest annual and quarterly reports and investor presentations, finding books about the company or written by its founder, looking for smart reports on websites like Value Investors Club, SumZero, or Seeking Alpha, talking to friends who know/own the stock, seeing if there are any reports by short sellers, etc.

Any time I start to look at a particular stock, I recognize there's probably a 1% chance that the process would end in me recommending it right away.

But that doesn't mean I'm wasting my time...

I benefit by constantly learning about new companies and, for the 99% I decide not to pull the trigger on, they go onto my "bench" to be monitored over time. Many of my greatest investments have been stocks that have been on my bench for years (sometimes even decades!).

And as I said in my May 2 e-mail on why I share good – but not always actionable – stock ideas in my daily e-mails:

The more important reason I write about good but not currently actionable ideas here is because, to be a successful investor, you need to develop a deep "bench" of industries and stocks you're familiar with.

Then, like a good manager of a sports team, at any given time, you can have nothing but the best "players" on the field.

That's why I'm always reading, talking to smart people, going to investing and industry conferences, etc. I'm constantly developing my "bench" from which to pull ideas when the time is right.

5) Finally, one reader wrote:

Why are you wasting my time writing about beaten-down stocks? Why don't you focus on stocks that are hitting new highs?

Unfortunately, I see it happen all the time when investors rush into stocks that are hitting new highs: Blindly chasing performance is a sure route to ruin.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.