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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (3300)	2/24/1998 4:48:00 AM
From: Madharry	Respond to of 78486

I can't resist throwing in my two cents here. Nike has been the equivalent of a Mcdonalds- a mediocre product hyped to infinity. But at some point the party ends. There are no significant barriers to entry and unless you are an impressionable kid or a wimpy parent, cheaper brands are available. IMHO in the year 2000x we will be looking at these companies, and at the high multiples paid for some banks and wondering how people could have been foolish enough to pay so much for these stocks. I note that with respect to Mcdonalds five years ago in Israel there were none, on a recent visit I noticed many. Presumably this has taken place all over the world. But sooner or later the party ends.

To: Jurgis Bekepuris who wrote (3300)	2/24/1998 8:53:00 AM
From: Michael Burry	Read Replies (1) \| Respond to of 78486

I'm on the wrong side, theoretically, of a stock gaining positive momentum that everyone wants to like. What can I do? IMO, Nike's long-term prospects are less than what everyone thinks. My thinking is along Armin's. What barriers to entry? What's to prevent another brand to get hot or the shoe mania (which is a recent phenomenon) to end. Nike's then stuck with overbuilt infrastructure and a longer-term inventory problem. My mailbox is peppered with people saying, "you've got a great franchise, 20% ROE, great management...are you some kind of idiot" and then they inevitably take the high and mighty road "I'm a long term investor." or the low road "I'd take Phil Knight or Buffett over you anyday." If everyone thinks this, I can't stop them. And it will become a PE 50 stock that makes no sense just like Gilette or Microsoft or Coke. Today, nifty fify refers to the PE. Pay anything for large, liquid consumer brands. Price does not matter. If it's on your store shelf or you see it everyday, then it is worth whatever price you pay, and investors find confirmation in the high valuations. This is twisted Buffettology. My point is price does matter, and that the stock was in hype-world thanks to unsustainable growth that everyone overoptimistically thought would continue forever. Even Nike, with all their capital spending. So the analysts bid it to the 50-70's. That hyped world can return, no doubt. I think of myself as a value investor, not a speculator. I see a risky market, a stock everyone wants to love, and significant downside short-term that may become long-term if any of this lasts more than six months, which no one expects. That was the other thing I'm getting. "Ok, write off 4-500 million in inventory and you still have a great franchise." But that's like Oracle blaming Asia. There's more to it than just a one-time event IMO. I'll wait, thank you. I called Nike trying to write a positive story. I came away saying, I can't. James Clarke has a lot of good arguments for Nike but he hasn't posted them here. His was the most intelligent response I received in a sea of "but but but" stuttering. Good Investing, Mike

To: Jurgis Bekepuris who wrote (3300)	2/24/1998 10:13:00 AM
From: Stewart Whitman	Read Replies (1) \| Respond to of 78486

Jurgis, One thing that I learned from reading Graham was not to use a single year's results to evaluate companies to see if I'm getting a bargain. When you look at PSR and say it's less than 1.5, take a look at the average sales for the last 3 years (substantially less) and see what it is. Try the same for earnings when looking at a P/E. Now, I know you'll say that averaging sales or earnings for a fast growing company is wrong and using those numbers gives an inaccurate picture. But look back to years like 1994 when sales and earnings dropped. If you can convince me that the revenues for 1997/1996 are not just the result of "very good years" - that there was real quality growth - than using averages is probably inaccurate and the stock might justify higher numbers. I also don't understand why you think that PSR of 1.5 is so exceptionally low. NKE seems to have always sold for PSR less than 1.5 (except in 1996 when PSR went up to over 2). If you argue that NKE should have a higher PSR, say 2, then with NKE's margins the P/E is ~24, at 2.5 the P/E would be ~30. In this market, maybe those P/E are justified. Maybe it does deserve a premium, but as Mike pointed out in his article the historical P/E is about 15, growth rate arguably about 19% - so how much of a premium do you want? For what it's worth, I don't think NKE at $40 is paying full price - not a bargain but not overvalued. I just surprises me when people think that they are getting a steal. Stew