Peloton (NASDAQ: PTON) stock soared in trading yesterday as rumours circulated that sportswear giant Nike and online retail juggernaut Amazon were considering bidding for the battered fitness firm. Does it make sense for a Foolish UK investor like me to climb on board for the ride?

Reasons to buy

Despite having been a Peloton sceptic for a long time, I don’t think this company is without merit. 

Its flagship bikes are undeniably beautiful bits of kit. Like any other premium brand, I can still see some people wanting one for the image it projects. That’s regardless of how often they actually intend to use it. And a few businesses may consider that to be worth (quite a bit) more than the $10bn valuation it now trades for. 

There’s also little doubt in my mind that the industry is only likely to go from strength to strength in the years ahead. The evolution of smart health-related tech shows no signs of slowing. The influence of social media will surely play a role in pushing more people to improve their fitness too. 

The idea of a heavyweight like Amazon or Nike acquiring the company could also attract other potential suitors to the fray. Apple‘s name was bandied about when Peloton stock first began its awful slide. Having seen it now tumble 80% in one year (even after yesterday’s 21% rise), the Cupertino-based business could now throw its cap into the ring.  

Reasons to steer clear

But let’s come back down to earth for a second. 

One of my biggest gripes with Peloton as an investment is that, aside from aesthetics, I’m not seeing much to separate it from the competition. There’s no ‘moat’ here, to coin a term from Warren Buffett. The fact that Peloton has now cut the price of its equipment on multiple occasions only serves to confirm this.

It’s also a sign that the trend for more people exercising at home may be coming to an end at the same time as the pandemic. Gyms bring an element of socialisation to fitness that staring into a screen can’t. That will be the case no matter how interactive Peloton tries to make its classes.

On top of this, Peloton has already faced a lot of negative publicity as a listed company. These have ranged from the highly serious (product recalls following injuries to pets and children) to the frankly ludicrous (TV shows featuring characters having heart attacks while using its machines). That’s hardly what I like to see as a prospective investor.

So, will I buy Peloton stock today? 

It will be fascinating to see how all this plays out. Amazon clearly has sufficient clout to revitalise the company whereas Nike has arguably better knowledge of the industry. 

Then again, yesterday’s initial excitement could easily dissipate just as soon as it arrived. After all, there’s no guarantee of a bid from either business materialising. In such a scenario, I’d be left holding stock in a company with dwindling revenue and a challenging outlook. That smacks of gambling to me. And that’s not the Foolish way.

I won’t be buying Peloton stock. Instead, I’m inclined to keep my powder dry for other opportunities.

If I were to buy a sold-off share, it would probably be this one. 

The post Peloton stock just surged! Time for me to buy? appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Apple, Nike, and Peloton Interactive. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

So, with 2022 on the horizon, will Nike be able to carry on with its impressive form, and should I be buying its shares? Let’s take a look.

Nike Direct

One aspect of Nike that excites me is the growth it has witnessed in its direct-to-consumer sales. In its latest trading update, these sales were up 28%. Sales of this nature increase profit margins for Nike as it allows the firm to keep the cut that would go otherwise to other retailers. It also allows the business to control its pricing more closely. More than 65% of Nike’s sales came in at full price for Q1, exceeding its own expectations and showing this in action. This is also exemplified through its gross margin — which sat at 46.5% for Q1. 

Another strength I see in Nike is the growth in its digital sales. At a time when many shoppers are transitioning to purchasing goods online, Nike has seemingly been able to make the most of this. Its digital sales rose 29% for Q1, showing the potential it possesses. Where it stands out from competitors is through its unique forms of digital interaction with consumers. Being a user of the SNKRS app myself, I’m aware of the exciting features it offers such as exclusive releases and events. As digital shopping continues to grow, Nike should reap the benefits from this. 

Nike concerns 

Yet one concern for me is supply chain issues. This is a global headache impacting many businesses (as seen when I reviewed Tesla stock earlier this month), but it does pose an especially big threat to Nike. The firm’s production lines have taken a hit due to local lockdowns in factories in Vietnam and Indonesia. Further issues such as shipping container shortages have impacted the firm. It announced this week that it had cancelled store orders in one of its outlets until summer next year due to supply issues — showing the potential severity of the issue. Should this continue for too long, I’d expect to see this negatively reflected in the Nike share price.

Will I buy?

The growth in its digital sales only shows a slither of the potential Nike has to offer. Its recovery from the pandemic can be seen as a testament to the firm’s strengths. But the supply chain issues remain. Although the situation seems to be easing in some areas, a spike in cases could plunge Nike back into trouble and dent its share price. While I like the look of Nike shares, I will be holding off until the situation around its supply chains is clearer.

The post Can the Nike share price continue its impressive form? appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Nike. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I didn’t start investing until my late 20s. What followed was a steep learning curve, albeit helped by following the thoughts and dealings of some of the best money managers in the business. One in particular — Fundsmith Equity‘s Terry Smith — has probably served a bigger role in my education than any other.

Terry Smith on quality

Terry Smith looks for winners. In practice, this means surveying the market for companies that already possess a strong/leading share of their market and can be depended on to protect it. This is why many of the stocks that make up the Fundsmith Equity portfolio have been around for many decades. Past performance might not be a guide to future returns but it can help when looking for resilient businesses that have consistently managed to grow revenue and profit.

These days, I’ve a penchant for smaller companies flying under the radar. That said, I’m still applying a quality criterion like Terry Smith. Aside from the characteristics already mentioned, I’m on the hunt for businesses generating high returns on capital and big margins. This means I now steer clear of capital-intensive businesses like airlines (which Smith labels “machines for losing money“). 

Like Smith, it also means I’m very selective about what makes it into my ISA portfolio these days. Only 29 holdings make up Fundsmith Equity right now. So long as I’ve picked well, operating a concentrated portfolio can turbocharge my returns. Of course, the opposite is also possible! 

Price matters…to a point

‘Buy low, sell high’: that’s the rule that every investor tacitly learns on entering the market.

Terry Smith doesn’t go against the grain here. However, the UK fund manager has frequently pointed out that focusing too much on valuation can prove detrimental to returns. For Smith, a stock’s price is of secondary importance to how good a company is (see above). A cheap stock can always stay cheap while a more expensive stock can go on increasing in value. In other words, contrarians/value hunters don’t always prosper. This is why Smith picked up stocks like Nike and Starbucks in the 2020 market crash rather than buying ‘bargain’ travel stocks. 

As an investor, I’ve come around to the idea that simply trying not to overpay is preferable to buying what’s cheap. This is also why I’m wary of unprofitable, flavour-of-the-month companies such as cybersecurity firm Darktrace even when its prospects look undoubtedly solid. So long as I’m paying a not unreasonable price, I know the risk/reward should theoretically be (more) in my favour.

No gimmicks

A final thing I like about Smith is his no-nonsense approach. He picks stocks that he expects to generate a better return for holders than the market. He doesn’t short (bet against) any companies. Nor does he use derivatives or get involved in any creative financial practices like some managers might.

Most importantly, Smith has taught me that investing is as much about what you don’t do as what you do. In practice, this means buying stocks with the intention of holding for years rather than attempting to ‘time the market’.

Not only is predicting the short-term movement of a share price very difficult, it only guarantees fees. As Smith frequently highlights, Fundsmith has very low turnover, meaning that investors ultimately get to keep more of the profits made.

The post No savings at 30? Here’s how I’m using Terry Smith’s strategy to build wealth appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Fundsmith Equity. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Global portfolio

What really stands out to me with JD is its recent acquisitions. Not only do I think its expansion strategy will provide long-term value, but it also seems to be providing the firm with an instant boost. Shoe Palace and DTLR, acquired in December 2020 and March 2021, respectively, generated £72.9m for the firm, according to its half-year results. For me, that’s an attractive factor when considering adding the FTSE 100 stock to my portfolio. Should returns like this continue, I would expect to see a further rise in the share price.

The £70m injection is only a slither of the impressive half-year results. Revenues were at nearly £3.9bn for the period, over a 50% increase from 2020, while operating profit excluding exceptional items was up by almost 400% at £471.7m. Profit before tax and exceptional items also rose to £170.8m in its core market (the UK and Republic of Ireland), a 225% increase from 2020 and 48% from 2019. For a potential investor like myself, these are appealing figures.

What also attracts me is the size of its portfolio. Globally, it has over 3,300 stores in 29 territories under its umbrella. This opens up an array of opportunities. And as the business continues to expand, I think shareholders will begin to see greater benefits. Yet this large exposure can also be a risk as we have seen so evidently with the pandemic over the past 18 months as sores were forced to close.

JD concerns

What does concern me, and as my fellow Fool Royston Roche highlighted, is suppliers/competitors such as Nike and Adidas. The fact they’re selling directly to customers may allow them to benefit from better margins, although JD does have exceptionally good relationships with both of these brands. Also, direct rival Sports Direct (owned by Frasers Group) is expanding and elevating its offer, and boss Mike Ashley may now be more determined to do so after the recent sale of Newcastle United. The firm’s plan to expand into Europe could damage JD’s market share. This is a major issue for me as it could negatively impact the JD share price.

Why I would buy

Although I’ve raised concerns, I do have a bullish outlook on JD. The latest set of results provided will no doubt give shareholders a confidence boost, but what most impresses me is the return from its two latest acquisitions. With such a large portfolio, I think the business could see real benefits from its global presence. As such, I would add JD to my portfolio today.

The post Why I’d buy this FTSE 100 stock right now appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Nike. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As the manager of what’s become the UK’s most popular fund (Fundsmith Equity), Terry Smith has helped to increase the wealth of many thousands of investors, including himself. As someone who picks my own stocks, I regularly draw on simple but powerful tips from the celebrated money manager. Here’s a small selection. 

Don’t just buy what’s cheap

Terry Smith’s experience tells him that investors obsess over price. Indeed, he frequently mentions wishing he’d kept a diary since he started his career in 1974. This would have two columns — one for whenever someone asked him whether a stock was cheap and one for if it was a good company. Smith believes that he would have “overwhelmingly” more ticks in the first column than the second. 

This is not to say that Smith thinks the price of a stock is irrelevant. No one wants to overpay if they can avoid it. For him, however, “it’s not the most important question“. Instead, he favours looking at the quality of a business first. One way of doing this is to look at its return on capital employed (ROCE).

Taking this on board, I’ve become a little less interested in valuation over the years and more interested in ROCE. I’ve already done well out of stocks like trading platform IG Group, laser-guided equipment manufacturer Somero Enterprises, kettle safety component supplier Strix and food-on-the-go retailer Greggs. All of these consistently generate high returns on capital (outside of a pandemic). 

This is not to say that Terry Smith would buy these stocks. Nor is blindly buying businesses with high ROCE a guaranteed route to riches. Some I’ve owned have performed woefully. Nevertheless, I’m confident that my winners now outnumber my duds. And over an investment career, that’s what matters.

Don’t time the market

Given his stellar investment returns, one would assume that Terry Smith is rather skilled at timing the market: buying at the bottom and selling at the top. However, he’s very much against trying to do so. As he frequently reflects during speeches, there are “only two types of people I’ve ever met in investment: those who can’t do [time the market] and those that don’t know they can’t do it“.

However, this doesn’t stop Smith from buying on short-term weakness. He snapped up US coffee chain Starbucks and sportswear and trainer maker Nike during last year’s market crash. But these are quality stocks that were already on his radar.

This is why I’m continuing to push money into Smithson Investment Trust — a fund run by his colleagues. This adopts an identical strategy to Fundsmith but focuses on companies lower down the market spectrum. Smithson’s performance has been superb and I might be tempted to take profit. However, I’m continuing to buy nearly every month. Why? I simply don’t know when markets will sink.

I also try to keep my costs as low as possible. After all, there’s only one certainty with frequent buying and selling: it costs money. So, like Fundsmith Equity, I try to have a very low turnover of stocks. Unless I spot something I really don’t like (or spot a great opportunity), I don’t deal very often.

As Terry Smith has reflected, “over the long term, it’s what the company does that makes money, not what you do“.

The post These tips from millionaire Terry Smith are boosting my stock market returns appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Fundsmith Equity, Greggs, Somero Enterprises, Inc, Strix, IG Group and Smithson Investment Trust. The Motley Fool UK owns shares of and has recommended Nike and Starbucks. The Motley Fool UK has recommended Somero Enterprises, Inc. and has recommended the following options: short October 2021 $120 calls on Starbucks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Has Fundsmith performed?

So, how well has Fundsmith done? The short answer is, ‘very well indeed’. 

Since it launched at the beginning of November 2010, Smith has achieved a return of 427% (based on Fundsmith’s most recent factsheet). By comparison, the MSCI World Index which the fund uses as its benchmark has returned ‘just’ 192%.

Had investors shunned equities completely and stayed in cash, they’d have grown their wealth by a frankly awful 6.3%. This, in my opinion, is yet more evidence that the Cash ISA is the last thing one should be using to build a nest egg for retirement. 

Gains to date clearly give credence to Smith’s strategy of buying shares in established, quality businesses, trying not to pay too much for them, then doing as little as possible.

At around £21bn, Fundsmith is already one of the largest funds in the UK. Nevertheless, there are a few reasons why it should continue to make good money for patient investors. 

Just getting started

For one, Smith rarely does much buying or selling. This helps keep transaction costs extremely low, meaning the fund holds on to more of its gains. 

That said, he’s not afraid to adapt. Fundsmith’s exposure to technology stocks, for example, has vastly increased over the years. Think tech titan Microsoft and social networking giant Facebook. This willingness of Smith to move with the times should be reassuring for those prepared to stay invested until 2030.   

Like Warren Buffett, Smith has also been true to his word and bought great shares when others are selling in a panic. Coffee chain Starbucks and sportswear label Nike have been two new additions this year, captured during March’s market meltdown. 

The fact Smith holds a concentrated portfolio with just 29 holdings also means Fundsmith should do far better than a passive fund tracking, say, the FTSE 100. As he’s remarked many times over the years, good investing is as much about avoiding the rubbish as it is with finding the winners. Sadly, the market’s top tier contains some absolute stinkers.

As an aside, it’s notable that Smith has always advised avoiding the airline sector completely. Those invested in Fundsmith over 2020 will be glad he did. 

So, nothing can go wrong?

I wouldn’t go that far. As investors, we must accept past performance is no guide to the future. This applies as much to celebrated fund managers as it does to any shares we buy.

Fundsmith could certainly become a victim of its own success. As we know, expecting too much from any fund or individual share normally leads to disappointment. With over two-thirds of its portfolio exposed to the arguably-still-overpriced US market, Fundsmith is hardly devoid of downside risk.

Should performance slide, investors may become more vocal over the management fees. Some already believe these are too high, considering the fund’s size.

At 67 years of age, there’s the possibility Smith may decide to retire (or take a backseat) at some point in the next decade. That said, I take huge comfort from his no-nonsense approach and track record to date. I have no hesitation in committing my cash for the next 10 years.

The post Terry Smith’s Fundsmith Equity is 10 years old. Here’s why I’d hold for the NEXT decade appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in Fundsmith Equity Fund. The Motley Fool UK owns shares of and has recommended Facebook, Microsoft, Nike, and Starbucks and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and short November 2020 $85 calls on Starbucks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The most eye-popping takeaway from Nike’s results was the strength of product demand in Greater China — the company saw total sales in the territory leap an astonishing 30% in the three-month period, to $886m.

Following the results Nike chief financial officer Andy Campion commented that “while we are very mindful of the macroeconomic volatility in China, our brand has never been stronger and our marketplace has never been more healthy.”

Brand power is key

Nike is undoubtedly reaping the rewards of the rising fitness craze in China, a trend helped by the growing popularity of ‘wearable’ apparel and other technological developments. But the results also undermine the idea that economic cooling in the region is smashing consumer spending power — with the right product mix and brand strength, the growth markets of China still provide plenty of upside.

Oriental-inspired retailer Supergroup (LSE: SGP) certainly thinks so, the business having unveiled plans to create a joint venture in the country with Trendy International Group (or TIG) back in July. The Cheltenham-based retailer advised that “China is a very exciting market and [is] forecast to overtake the US as the largest apparel and footwear market in the world,” and reckon the venture will be self-funding within two years of launch.

Unlike many retailers who have charged into China with all guns blazing, Supergroup is taking a more measured approach. TIG — which already operates thousands of luxury and ‘hip’ fashion outlets across the region, like those of Ochirly and Trendiano — will be responsible for day-to-day operations. This will leave Supergroup to deal with “strategic brand support, design services and marketing.”

Ready… Ted… Go!

Supergroup will be hoping the venture will emulate the success being seen over at Ted Baker (LSE: TED), a clothing manufacturer also carrying plenty of clout in the branding stakes. The London designer has also been expanding its store portfolio in China in recent times, including the opening of its first street-level store in Hong Kong in April.

Ted Baker is working hard to develop the power of its label amongst these new customers, and noted in March that initial reactions to its brand have been promising. It added that “we are positive about the long term opportunities in this territory,” and with good reason — retail sales in Asia galloped 19.2% higher in the 12 months to January, to £11.8m. Encouragingly the business advised of “further progress” in it global markets back in June.

Burberry poised to bounce

The situation in China has been far from rosy over at Burberry (LSE: BRBY), however. Sales in Hong Kong collapsed by double-digit percentages during April-June as challenging market conditions intensified, although its performance in the rest of the country was far better — demand in Mainland China “grew by a low single-digit percentage” in the period from a year earlier.

The impact of anti-extravagance measures by China’s government has severely dented demand for high-priced goods, a factor that ‘streetsmart’ labels like Supergroup and Ted Baker are far more immune to.

But while this issue could provide further headaches for Burberry, in the long term I remain convinced that the steady emergence of a rising middle class should power demand for the fashion house’s apparel resoundingly higher in the years ahead, along with those of its two London-listed retail peers.

The post Why Nike Inc’s Latest Results Bode Well For Supergroup PLC, Ted Baker plc And Burberry Group plc appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.