Zacks Investment Ideas feature highlights: Nike, and Adobe
For Immediate Release
Chicago, IL – March 18, 2022 – Today, Zacks Investment Ideas feature highlights Nike NKE, and Adobe ADBE.
2 Top Stocks for Long-Term Investors to Buy Now
Stocks surged for the second day in a row Wednesday, with the Nasdaq closing 3.8% higher after the Federal Reserve officially said it would raise interest rates for the first time since 2018. The S&P 500 is now up nearly 4.5% since Tuesday.
The Fed raised rates by 0.25%, deciding against a more drastic 0.50% hike amid the ongoing geopolitical uncertainty caused by the continued Russian invasion of Ukraine. Looking ahead, Jay Powell and central bank officials signaled they expect to raise their core interest rate to nearly 2% by the end of 2022 to help combat 40-year high inflation.
Wall Street is likely pleased to finally have the first official hike and a somewhat clear plan for the remainder of the year. Oil has also returned to more reasonable levels after prices skyrocketed to $130 last week, with WTI back closer to its pre-invasion prices at $95 a barrel. And Treasury yields are already at their highest levels since 2019 and hover around 2.19% right now.
The last two days were good enough to send the S&P 500 and the Nasdaq back above their late January levels. Unfortunately, inflation and what's next on the Ukraine front could make things difficult and volatile in the near term.
That said, we are nearing the start of first quarter earnings season and there are plenty of great stocks for long-term investors to buy at what should look like discounts years from now.
Nike
Nike remains the champion of the sportswear world as it successfully adapts to and creates trends. The iconic Swoosh is attached to many of the most popular sports, athletes, and cultural icons on the planet. This helps Nike stand out as one of the most valuable brands, alongside the likes of Coca-Cola and Apple.
Nike continues to invest in its future through multiple shopping apps and its massive, wide-ranging digital marketplace. Nike is all-in on its own e-commerce and direct-to-consumer, which includes brick-and-mortar, having cut ties with many retailers. All of this is good for margins and maintaining its brand cachet.
Nike's fiscal 2021 sales surged 19% (highest in decades), while its adjusted earnings soared 123% to bounce back from its slightly covid-hit 2020. Nike's supply chain struggles and rising costs are weighing on the firm's near-term outlook. Yet Zacks estimates still call for its FY22 revenue to climb 6%, with FY23 set to surge another 14% higher.
NKE's adjusted earnings are expected to pop 3.4% and 26%, respectively during this stretch. Nike lands a Zacks Rank #3 (Hold) at the moment and its FY22 and FY23 consensus estimates have dipped only -0.5% and -2.7% in the past 60 days. Plus, Nike has crushed our EPS estimates by an average of 34% in the trailing four periods, including a big Q2 beat.
Nike stock is up 79% in the last two years to top the S&P 500's 70%. NKE has also jumped 115% in the past five years vs. the benchmark's 87% and the larger Apparel Market's 73%. NKE is, however, now in the red over the last 12 months, having dropped 30% from its November records. At roughly $125 a share (following Wednesday's pop), Nike is trading around where it was in September 2020. Plus, Nike currently trades 45% below its current Zacks consensus price target of $181.33 a share.
On the valuation front, Nike is trading at a discount to where it was throughout much of 2018 and 2019 and at its lowest point since the initial covid selloff at 26.6X forward 12-month earnings. NKE trades near its 10-year median (25.4X) and at a 42% discount to its highs. And Nike's 1% dividend nearly matches its industry's average and peers such as Adidas, despite its outperformance.
Some investors might decide to wait for executives to provide updated guidance when Nike releases its Q3 fiscal 2022 financial results on Monday, March 21. Others might want to see how the volatile market shakes out in the coming days and weeks. But those with long-term outlooks of a year or more might consider buying this retail and apparel powerhouse. And Wall Street remains very high on the stock, with 19 out of the 23 brokerage recommendations Zacks has at "Strong Buys," with nothing below a "Hold."
Adobe
Adobe, like Nike, remains at the top of its field even as the subscription software space grows more competitive. Adobe's portfolio of subscription-based creative and design software includes Photoshop, InDesign, Premiere, and other big industry names. ADBE has rolled out newer creative offerings designed to help its customers in the digital and social media age, where high-quality visuals are paramount.
Adobe's subscription-based model helps create stable growth. Crucially, its creative cloud suite is invaluable for countless businesses, schools, artists, designers, and beyond. This helps Adobe thrive in a crowded SaaS world. Let's also remember, Adobe first burst onto the scene when it created the PDF and ADBE has expanded its business-focused offerings into e-signature, marketing, and other areas.
Adobe's 2021 revenue climbed 23% to $15.8 billion to take its streak of 15% or higher top-line growth to seven years running. This is quite impressive for a firm that went public in the mid-1980s. Its adjusted earnings climbed 24% last year as well.
Zacks estimates call for its revenue to climb over 13% this year and another 15% in 2023 to hit nearly $21 billion. Meanwhile, its adjusted EPS are projected to surge 10% and 15%, respectively. Adobe, which lands a Zacks Rank #3 (Hold) at the moment, has consistently beaten our bottom-line estimates in recent years.
Wall Street is very high on the stock overall, with 17 of the 20 brokerage recommendations Zacks has at "Strong Buys." Adobe doesn't pay a dividend, but it did repurchase over 7 million shares in 2021. Despite all of the positives, Adobe stock has been hit hard alongside most other tech stocks since November and it dipped further on slightly lower-than-expected guidance back in December.
Adobe closed regular trading Wednesday 36% below its records at $442.36 per share, with it now down 2% in the last 12 months vs. the broader Zacks Technology sector's 4% dip. ADBE shares are trading around where they were in the summer of 2020 and its Zacks consensus price target marks 48% upside to its current price.
On the valuation side, Adobe is trading at a discount to its 10-year median (40.2X) at 36.1X forward 12-month earnings and near its lowest levels during the past five years. This valuation is even more attractive considering the stock has soared 1,200% in the last decade to blow away Microsoft, Apple, and Tech.
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