The True Star of March Madness Isn't an Athlete
One of the most exciting sporting events resumes in just a few hours...
March Madness.
Even folks who don't follow basketball know about March Madness. It's the annual NCAA college basketball tournament where the best teams compete on the national stage in a single-elimination format. It's where the country falls in love with the latest Cinderella story.
I (Jeff Havenstein) am a huge basketball fan. I've been playing the game my whole life and even played four years at a Division I college (though we never made it to the "big dance" while I was there). So I will be engrossed in the tournament, same as every other year.
However, there's one thing that's different this year. I'm not only going to be rooting for my favorite teams to advance... I'll also be keeping a close eye on what brands the players are wearing.
According to a report from Yahoo Sports, 33 of the 68 men's teams (49%) and 37 of the 68 women's teams (54%) will be wearing Nike (NKE) gear. If you add in teams wearing Air Jordan (which is owned by Nike), these numbers rise to 60% and 62%, respectively.
Clearly, second- and third-place sponsors Under Armour and adidas can't touch Nike's dominance.
Nike has long been the footwear and sporting-gear brand of choice for the very best athletes. For example, since 1999, a Nike-sponsored team has won the college-football championship every year except one.
Kids grow up watching these big sporting events and wanting to be like their favorite athletes. So when they see many of those athletes wearing Nike products, they beg their parents to buy them Nike gear.
As a result, Nike's brand is unmatched in the sporting-apparel market. Its "swoosh" logo is nothing short of iconic. And that long-lasting brand recognition has led the company to tremendous success...
Nike has steadily grown profits over the decades and boasts high returns on capital – meaning high profits on investments in relation to how much was invested.
Since the end of 1980, Nike's stock has delivered 16.1% annual returns. That crushes the S&P 500 Index's 11.5% annual returns.
Lately, though, Nike has struggled. The stock is down nearly 60% from its peak back in late 2021...
The problem isn't the brand. Forbes ranks Nike as the 13th-most valuable brand in the world today. And Nike is still considered "cool." Again, we know this because most of the teams in the March Madness tournament are wearing the company's products.
Instead, Nike's recent underperformance is largely due to poor business decisions...
After the pandemic, Nike struggled with its inventory levels. It ordered extra product in anticipation of continued supply-chain delays that didn't materialize... And excess inventory has hurt the company's results over the past couple of years.
Management has also prioritized online sales and limited-edition sneaker releases while neglecting in-store distribution and new product launches.
And to top it all off, Nike has seen a slowdown in China, which makes up roughly 15% of sales.
These problems are all manageable, however.
New CEO Elliott Hill, a longtime Nike veteran, has been working hard to repair relationships with retailers, cut costs, and get Nike back to being an innovative company by spending more on new products.
Nike bulls are betting that he can help turn the ship around. Personally, I believe Nike is getting close to buy territory for three reasons...
1. Nike has an economic moat because of its brand.
2. It's a great dividend-paying stock. The company has increased its dividend for 23 consecutive years, earning it the title of "Dividend Achiever."
3. The stock is cheap right now compared with its historical average. Just look at Nike's price-to-earnings ratio, which is near a decade low...
Nike will report earnings tomorrow after the market closes. We'll soon get an update about whether or not Hill is making progress cleaning up the previous leadership's mistakes.
While I'm not officially recommending Nike in this newsletter, I think shares have become too cheap to ignore. My outlook is that patient investors will eventually be rewarded at today's prices.
Keep an eye on the company's results tomorrow... And be sure to enjoy the tournament, too.
But if you're looking at some of the best industry-leading companies to put in your portfolio, make sure you're a subscriber to my Retirement Millionaire newsletter.
Just last week, I recommended a company that has been a disruptor in the contract industry since 2003. Far from maturing into a snoozer, it has gone through a transformation over the past few years. And today, it's a cash-generating machine with plenty of growth ahead of it... thanks to its new foray into artificial intelligence.
If you're not already a subscriber, click here to get access today.
What We're Reading...
- March Madness 2025: What brands are tourney teams wearing?
- Something different: Harvard offers free tuition to families earning less than $200,000.
Here's to our health, wealth, and a great retirement,
Jeff Havenstein
March 19, 2025