What a week! Politics got mixed with investing, and Nike's stock dipped. Tesla's CEO smoked some weed while having an honest conversation, and the stock dipped. JD.com's CEO got arrested for God-knows-doing-what, and the stock dipped. So, for this week's edition of watchlist-worthy battles, we decided to look at these three dipping stocks to see which one is worthy of a spot in our watchlist and ultimately finding its way into our long-term portfolios. As always, if you are a premium member, log-in to find out our final investment decision for each stock. Let's get to the battle:
Note: All numbers stated are based on the last available data on 9/8/2018. If you are reading this edition at a later date, the information might be drastically different. Be smart and check your numbers.
$ Nike (Price to Earnings ratio: 69.7)
Whatever your political views are, there is no denying that the move by Nike turned one of the most controversial political topics of the year into an amazing PR campaign. Sure the stock dipped around 3%, but emotion is what Nike's brand is built upon. I read an article that stated "Dan Wieden, co-founder of W+K, Nike’s Ad Agency and the originator of the Just Do It slogan once said, “to be on the cutting edge means someone or something needs to be cut”. He wasn't afraid to take controversial chances and he loved working on Nike’s business because this was part of Nike’s brand DNA from the start." Beyond the Just Do It campaign, the company spends $11.51 billion to generate $36.40 billion in revenue and $3.93 billion in free cash flow. And for a company of the size of Nike, the revenue continues to grow steadily. Dip or no dip, this is a stable company, that pays dividend, with deep emotional connection with its consumers. No wonder the price to earnings ratio of the stock is more than double the average of the market.
Visit Nike's Stock Card.
$$ JD.com (Price to Earnings ratio: 318.9)
Yikes! C'mon man! Can you not just leave your celebrity life and run your company? That was my reaction when I read the news about the founder and CEO of JD.com getting arrested in the U.S. based on very serious sexual misconduct allegations. The man is a celebrity and billionaire in China nad married to a celebrity. But, no! He had to jump off the cliff of morality! Allegedly. We really don't know the full story here. But, the stock took a pretty big, double-digit hit following the news. While the police investigation continues, the investors in the company are left with a dilemma. On one hand, the company is a prime candidate for a market disruptor. It continues to capture market share away from Alibaba. Through its partnership with Tencent, investment by Alphabet, and several new partners, the company has a shot at an extraordinary growth rate. JD.com is a well-managed company too. It spends $8.28 billion to generate $58.54 billion in revenue and $2.44 billion in free cash flow. That's why the investors have rewarded the company with such a high stock price which has pushed the price to earnings to 318.9 as of the date of the publication of this analysis. On the other hand, if the allegations are true, there will be a big shake up in the management. Not to forget that most long-term investors do not want to hold on to the stocks of the companies that they do not ethically feel comfortable owning. It's a dilemma, and the dip is tempting!
Visit JD.com's Stock Card.
$$$ Tesla (Price to Earnings ratio: No earnings, which means at any price the stock is way too expensive.)
Oh Tesla! Tesla, Tesla! Expensive but disruptive, a great brand, with a side of weekly drama! And, a financial media that uses Tesla's name and mentions Elon Musk to come up with a new clickbait everyday. This week again, we witnessed a drama. While Elon Musk was having a very honest and candid conversation with Joe Rogan, the host offered him a joint. He tried and gave it back saying it's not for him. But, then the media went frenzy, people talk about him losing his security clearance because he used a drug, and the stock was ready to take on another hit. The stock price was around $260 when the market closed on Friday. And, since the company has no earnings, using price to earnings ratio means the company is among the most expensive stocks you can pick up. The company spends $3.98 billion to generate $12.47 billion in revenue and $-4.43 billion in free cash flow. And, the concerns about the company's ability to stay afloat and not run out of cash continues to be valid. The case for owning Tesla stocks is not supported by intelligent investing facts, but rather dependant on the faith investors have in Elon Musk and the future they imagine in their own minds.
Visit Tesla's Stock Card.
Who is our watchlist-worthy pick?
Eliminating one of the three is easy. Investing in Tesla has nothing to do with the numbers and facts. Even if the stock dips further, investing in the company is only wise if you are willing to lose all of your money for a narrow chance of being a part of the future of energy and cars. Or, if you just like supporting Elon. Choosing between JD.com and Nike is not that difficult either. JD.com is a very well-managed company, the dip in the stock is significant and the cause of the dip is not operational. Mind you, if the allegations turn out to be true, there will be a period of further price decline, but in the end in a growing market like China, and with all the stakeholders involved the company will most likely do well in the long-run. As an investor you need to decide to what extend it matters to you to support a company led by a man with no moral compass. In the end, the winner of the watchlist-worthy battle is Nike. I don't believe the dip in the stock is meaningful. The dip is not significant enough to drag the stock to an undervalued range. But, among the three dipping stocks of the week, Nike is the only one that has everything it needs to continue to win. I'm not saying you should jump in and invest in NIke, but visit the company's Stock Card and see for yourself whether the stock fits your investment strategy.
Hope you enjoyed this episode. If you are a premium member, log in to read about Stock Card team's final decision. If not, write back to me or share your thoughts on our Facebook Group and let your fellow investors know which one is your watchlist-worthy winner?
You or someone you know has the dibs!