“Bulls and Bears make money, but Hogs get slaughtered.”
- There must be demand for the company’s products. Nike’s been creating demand for decades, thanks to the “cool factor” supported by sharp advertising and clothing that looks good, feels comfortable and lets everyone know you’re an athlete.
- The company’s total addressable market. In other words, how big the market is for its products. Cramer also likes to know where it sits in the pecking order. Nike is the dominant player in footwear and number two in apparel.
- Are there any catalysts that can power the stock higher? Nike has several catalysts, like the Summer Olympics.
- Other ways to look into the future. Nike has a company-specific key metric called future orders, which allows customers to order merchandise six months ahead.
- The company’s ability to pass costs onto the customers. Nike made it clear in the conference call that it had no trouble passing on raw costs through price increases, Cramer said.
- It’s important to understand the geographic breakdown of the business. Nike’s fastest growing geographies are emerging markets, which is up 26 percent year-over-year. China is up 28 percent and the U.S. is up 21 percent. Western Europe and Japan are still challenging environments, but they’re offset by the strength elsewhere.
- Wall Street loves accelerating revenue growth. Nike has this across multiple product categories in both developed and developing markets.
- Inventory. When companies with retail components have too much inventory, it can be a problem since they’ll have to discount the older products before bringing in a new product. Nike’s unit inventory growth outpaced its sales growth, but since absolute unit levels have “plateaued,” Cramer is not concerned.
- Good companies are always reinventing themselves and their products. Nike is doing this, Cramer said, with new technology in its shoes and marketing.
- Company culture. Nike is focused on improving the way they work. This is the least important item.
When Jim Cramer worked at his hedge fund, he asked analysts the following eight questions:
No. 1: What’s goingto make this stock go up, besides the stock market?
No. 2: Why is it going to go up? Is there something time sensitive?
No. 3: Is this the best time to buy it?
No. 4: Have you missed a lot of the move? How much has the stock gone up without you? Is it extended on a technical basis?
No. 5: Should you wait until it comes down a bit more? What’s the harm?
No. 6: What do you know about this stock that others are missing? Is your instinct to buy based on general knowledge, and you’re working on a herd mentality? Have you listened to the conference calls and done the research, or are you flying blind?
No. 7: What do you actually know about the company and sector? Do you have personal knowledge? Do you know how the cloud works, what stock trades with what, or where it lies in the sector’s food chain?
No. 8: Do you like this stock more than others you own and why? Is there anything to get rid of before buying this stock?