Dow Stays Flat, But Nike, Home Depot Point to Weakness in High-Growth Stocks

Investors didn't get their record close for the Dow. Can growth stocks keep leading the bull market higher?

Apr 3, 2014 at 9:00PM

After a morning during which the Dow Jones Industrials (DJINDICES:^DJI) set a new intraday high, traders have to be disappointed with the Dow's eventual loss of about half a point, or 0.0027%, which left the venerable stock market benchmark a whopping four points below its Dec. 31 record high. Yet, despite the fact that the Dow's flat performance today suggests investors' willingness to own stocks even after a massive five-year bull run, flagging performance from growth stocks Nike (NYSE:NKE) and Home Depot (NYSE:HD) hints at fatigue among high-momentum gainers that have led the Dow and other markets higher over the years.


Source: Nike.

Nike's three-quarter percent drop is just the latest in a series of declines ever since last month's earnings report for the athletic shoe and apparel maker. As tempting as it is to blame the company's bad fortune on short-term news events like the withdrawal of endorsement partner Tiger Woods from the Masters golf tournament later this month, Nike has many investors wondering whether it can sustain its growth pace without a stronger contribution from high-potential markets like China. In its quarterly report, Nike reported a big jump in the amount of money it spent on overhead expenses, raising concerns about rising costs more broadly, and whether top-line growth can exceed the rate of increase in overhead. One key test for Nike will come this summer, as Brazil prepares for the World Cup and Nike makes its play to try to capture more of the soccer market from Adidas. If it's successful in Brazil, though, Nike's shareholders could get a big reward, as growth could pick up strongly from a rising class of new emerging-market consumers.

Meanwhile, Home Depot fell 0.7% amid mixed signs for the housing market nationally. Across the country, many states have seen prices rise far enough to exceed their past peaks from the housing boom, making some investors nervous about a newly budding housing bubble and the impact it could have on both homebuilder stocks and on related industries like Home Depot's home-improvement business. Tomorrow's employment report will play a vital role in whether Home Depot can move forward from current levels, as the retailer hits its key spring season and needs to build momentum in order to perform well. After years of finding ways to execute well and deliver growth even in sluggish housing markets, the onus is on Home Depot to find new ways to capitalize on the economic environment, no matter which way it moves.

The benefit of investing in Dow stocks is that even its growth giants don't usually have the risk levels or amount of momentum that other stocks have. As a result, even with the challenges that Nike and Home Depot face, the need for immediate kneejerk reactions among shareholders is far less than it might be if you owned lower-quality stocks in your portfolio. Nevertheless, though, the Dow will need good performance from its growth stocks if it wants to keep soaring to new record highs.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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