Today’s Buys

For my long term portfolio I bought the following:

Added shares of Nike (NKE) at $55.35 

Bought shares of Endo Pharmaceuticals Holdings (ENDP) at $16.65.

 

For my short term portfolio I bought the following:

 ProShares UltraShort S&P500 (SDS) at $55.90.

 ProShares UltraLong Basic Materials (UYM) at $18.50.

 ProShares UltrasShort Real Estate (SRS) at $20.

Market Update

Dow Chemical (DOW) dropped to $6.50 today. I am now convinced that if the Rohm & Haas deal is completed that Dow will not be a viable company. It is finally in Rohm & Haas best interest to negotiate a lower price. If the deal is completed Dow will be running to the government for funding.

Berkshire Hathaway (BRK.B) Class B shares are looking cheap. Berkshire is one of the few AAA rated companies left. Plus you get the opportunity to invest with the world’s greatest investor for $2,300.

I am adding more Nike (NKE) stock to my long term portfolio. Great balance sheet and the stock is trading at just over $39 per share. Nike has no debt problems and does not rely on borrowing to fund operations.

I have not bought any Microsoft (MSFT) stock in years but at roughly $15 a share I am willing to buy again.

Nike’s Job Cuts

Nike announced that the company will be eliminating 1400 jobs in the coming year. The athletic shoe retailer determined that job cuts were needed for cost savings. The preemptive job cut has me wondering if Nike will be able to meet earnngs expectations for next month’s quarterly earnings. Nike has been a bellwether of economic growth by increasing earnings for the past 10 years. The company has traditionally dazzled the market by historically exceeding analyst expectations when it comes to quarterly earnings.

It will be difficult even for a company like Nike to meet its earnings expectations over the next two quarters. For its fiscal 3Q 2009, Nike is expected to report earnings of .82 cents per share. Earnings expectations for the 4Q have not been guided down and are estimated at $1.11. Nike may have a difficult time meeting these earnings expectations because this recession has been longer and deeper than originally expected. The current economic landscape has not been kind to retailers. Nike has been shielded from the economic downturn so far but if the company does miss on its quarterly earnings the stock will be under pressure.

The stock looks cheap trading at $45.05, which is very close to its 52 week low of $42.68, but it may drop even further in the near term. Nike’s shares are only down 25.7% over the past year compared to rivals such as Adidas whose shares are down over 60%. While shoes are a necessity, expensive athletic footwear is still a discretionary item. If earnings per share come in at $3.89 for FY 2010 the stock would be incredibly cheap at $38 which would give the stock a multiple below 10. This would be well below analyst expectations of $4.14 per share for 2010. I do like Nike’s shares for the long term and continue to hold shares because of its solid financial position, strong brand name and management team.

Nike Should Buy Under Armour

During these turbulent economic times, companies with strong balance sheets should look to gain market share and boost long term revenue by acquiring smaller competitors at discounted prices. Nike (NKE) is in an ideal position with enough cash to acquire Under Armour for pennies on the dollar. Nike’s was one of the few companies whose previous quarter’s earnings beat analyst expectations with sales and profit growth. Nike earned 4.6 billion which was a 6% increase over its previous quarter. Net income increased 9 % and grew to almost 400 million. Nike has over 2.7 billion in cash, short term investments and only 800 million in debt. Nike only has 445 million in long term debt on the balance sheet.

Under Armour (UA) is currently selling for $17 per share and has a market cap of just 829 million. The enterprise value is even lower at 788 million. This is the perfect time to make a play for Under Armour. Under Armour has a good balance sheet but the company has seen a slowdown in sales revenue. Under Armour saw its earnings drop 50 percent last quarter to 17 cents per share. Under Armour also had to increase its line of credit with PNC bank to 180 million. Quarterly sales actually increased 3% despite order cancellations and returns.  Sales growth for the year still came in at a robust 20%.

Nike could make an offer of $22.10 per share which would value the company at just over 1.08 billion dollars. This is a 30% premium over the current share price. Under Armour executives would have a hard time turning down such an offer in this current recessionary environment. Under Armour’s athletic apparel is very popular with college athletes, schools, and youth. Under Armour is trying to gain a foothold in the athletic shoe market which Nike dominates. Buying Under Armour would give Nike an even greater presence in the athletic apparel and shoe market. Nike would give Under Armour greater international exposure in new markets and provide needed liquidity. The deal appears to be a win win for both companies.

I do own shares of Nike stock.

4 Stocks for the Long Haul

I own stock in each of these companies and have never sold a share. I look to add to my positions when I think the prices are cheap. This is by no means a recommendation for you to buy these stocks. I just think that the information may be useful.

1. BP – This is my favorite oil and natural gas company. I love the growth prospects for the company and the dividend is great. BP has consistently increased the dividend for as long as I have owned the stock. I even buy my gas from BP because it makes me feel like I am paying myself.

2. Nike – The swoosh dominates the athletic apparel market. Nike continues to sell athletic gear both domestically and globally while leaving its competitors in the dust. Nike hasn’t been cheap enough for me to add shares in quite some time. The recent drop in price is giving me my best buying opportunity since 2006.

3. Costco – I love the Costco business model and the growth potential. Costco offers discounted goods and services while paying employees fair wages. I think that Costco could potentially open hundreds of new stores domestically over the next decade. I must like Costco a lot considering that I have held it through the beating that retail has taken.

4. Burlington Northern – I must admit that I only found Burlington Northern because Buffett was buying the stock. Even though the stock is near its 52 week low and transports are declining; I am looking to add shares. The railroad business has been the most cost efficient way to transport basic materials for years and should continue to be so.