Merrill Lynch Says Buy These 2 Hammered Sports Apparel Giants Now

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Last week was a vicious week for investors as the markets got pounded on a generally rising fear that interest rates will be raised in December. As we have reminded our readers, the rate increase most likely will be a puny 25 basis points, or one-quarter of 1%. This should have little if any effect, other than psychological, and now is the time to scoop up two top discretionary apparel stocks that got hammered.

While the consumer discretionary stocks were pounded last week, it is still the biggest gaining sector in the S&P 500 this year, up a whopping 10.52% as of the close on Friday. Two stocks in the sector that are absolute leaders got mauled and analysts across Wall Street are urging savvy investors to buy them now.

The analysts at Merrill Lynch are huge fans of both stocks and have them each rated at Buy.

Nike

This stock has had an outstanding year so far, still up a sizzling 25%. Nike Inc. (NYSE: NKE) is a worldwide athletic giant and a top consumer discretionary name. It posted very strong fiscal fourth-quarter earnings in June. The company also has outstanding potential upside from a turnaround in its China business, improvements in gross margins and continued innovation-driven market share gains in both basketball and running footwear. With one of the most recognizable brands in the world, long-term investors may do very well adding shares here despite the big move up in the stock this year.

Nike is benefiting from consumer preferences for “athleisure.” With the company’s extensive product line and recognizable worldwide branding, the stock continues to roll year-after-year. Nike recently provided an overview of its plans to drive growth in its Nike Brand Direct to Consumer (DTC) operations. Driven by its digital business as well as inline and factory stores, Nike now anticipates achieving $16 billion in revenue by the end of fiscal year 2020. Over the next five years, incremental growth in DTC revenues is expected to be driven by e-commerce sales, which are projected to grow to $7 billion. Nike also expects to drive wholesale growth in the mid-to-high single-digit range over the next five years.

Nike investors are paid a 0.95% dividend. The Merrill Lynch price target for the stock is $140, and the Thomson/First Call consensus price target is $140.25. Nike closed at $121.86 on Friday, down 3.27% on the day.

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Under Armour

This is another apparel leader that was absolutely mauled last week and could have huge upside for investors. Under Armour Inc. (NYSE: UA) bills itself as the originator of performance footwear, apparel and equipment that has revolutionized how athletes across the world dress. Designed to make all athletes better, the brand’s innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitness platform powers the world’s largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal.

The company reported that net revenues increased 28% in the third quarter of 2015 to $1.20 billion, compared with net revenues of $938 million in the prior year’s period. On a currency neutral basis, net revenues increased 31% compared with the prior year’s period. Net income increased 13% in the third quarter of 2015 to $100 million, compared with $89 million in the prior year’s period, and diluted earnings per share for the third quarter of 2015 were $0.45, up from $0.41 per share in the prior year’s period, inclusive of the impacts of the Endomondo and MyFitnessPal acquisitions.

The Merrill Lynch price target is $108, and the consensus target is set at $107.43. The shares closed Friday at $87.43, down a huge 5.34%.

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Nike and Under Armour dominate the sports apparel world and are continuing to extend their worldwide presence every year. It is almost impossible for a new or even existing company to come in and challenge the powerful consumer brand awareness. They have been put on sale, and aggressive accounts should consider adding shares now.