Long-Term Investors Should Look At Nike (NKE)

Most investors will have heard the phrases "buy when there is blood in the streets," or "buy the fear, sell the greed." Essentially this means to be contrarian and buy when others are selling and sell when others are buying. This strategy, when combined with the right time-frame, can be quite successful. This is particularly true for long-term value investors.

Nike NKE missed its quarter last night and the stock is getting destroyed on Friday. Most all of the stock's 52-week gains have evaporated. From a short-term perspective, the chart looks terrible. Nike has now lost more than 9% in 2011, including 9.24% on Friday. The shares are trading at $77.50 compared to a 52-week high of $92.49. Wall Street has soured on the company, for now, whereas not long ago, investors and traders were clamoring to get in.

For those with a longer-term investing horizon, the coming weeks might yield a very attractive entry point in this stock. There are a number of very compelling reasons why investors should be richly rewarded for holding NKE shares in the coming years. This is a great, high-quality company. Nike has a tremendous competitive moat and a world-class brand. Long-term performance has been spectacular.

Over the last 10-years, NKE has appreciated around 325%. Over the last 5-years the stock is up 81%. Compare that to what the S&P 500 has done. Furthermore, NKE is nowhere near being a mature company, with a market cap of just $37 billion and tremendous momentum in international markets. For example, in the company's fiscal third quarter, revenue in China was up 21% to $554 million while emerging market revenue grew 19% to $643 million.

Last May, the company outlined its future growth plans, targeting high single-digit revenue growth, mid-teens earnings per share growth, and a return on invested capital of 25% through 2015. Nike at these levels, given its superior track record, healthy growth rates, and dividend yield looks to be a rather safe investment with potential upside.

The shares trade at a trailing P/E of 18.72, a forward P/E of 15.41, and a PEG ratio of 1.78. The stock yields 1.40% at current levels and the company has a four year $5 billion share repurchase plan program in place. As of the end of the third quarter, the company has purchased a total of 22.9 million shares for about $1.7 billion under that program. Investors can also likely anticipate dividend hikes going forward, as the company has a solid track record of returning earnings to shareholders.

The quarterly earnings miss certainly is a short-term disappointment for current shareholders, but it is a tremendous opportunity for those that do not currently have a position in the stock. This is exactly the kind of company that long-term investors should be targeting. Nike is a high quality company with a premium brand and an impeccable track record of rewarding shareholders. In addition, it has significant growth opportunities in international markets, trades at a reasonable valuation and pays a dividend.