Value Stock ... Or Not?

When Nike was at $87.50 on December 22^nd, 2011, I thought I had bought a value stock. It had dropped a few percent (5.8), and I thought it was a good time to buy before the spring season starts. With my love for the brand, I bought it immediately without taking much consideration. Looking back, I had not made the right decision.

I started to realize, just because a stock goes down heavily, it does not mean it will find its way back up.

I should have looked at previous performance, Nike was actually coming down from its peak earlier in December. It was almost twenty dollars higher (per stock) than it was in June (all-time high).

Then I realized Nike did not have much potential in the coming months. Nothing exceptional was due out that can stimulate the stock up.

If a stock crashes, it might happen again.

So after all that, I had decided to sell, but that quickly changed. On March 18^th, just went we’re hinting at the top three of the competition, Nike took over a 9% fall. With over 15% of our equity invested in it, it brought our whole portfolio down. We did not know what to do, as we dropped to 8^th place and were down almost $20,000 on one stock. Looking more in depth at this sudden fall, it was all due to cost of inputs for the 2012 fiscal year. They were worried about the margins of profit. Everything else was up including orders all over the world, sales in the quarter increased seven percent, and consumers were predicted to spend more money on sports apparel than last year.

The futures number “indicates a healthy business,” said analyst Sam Poser of Sterne Agee. “But margin pressures cast a shadow.”

With much more thought this time around, we decided it was safe to say, that we further invest in Nike. We were correct this time, or at least until today. We cut the twenty thousand dollar hole in half, and are thinking about selling before another major crash. Moral of the story, do not buy a stock once it declines. Look into why, and its past trends.

Saagar Gupta, Yo Investments

– (Source: http://bit.ly/gPyhQI)