It's a premier time for long-term investors to buy stocks. Sky-high inflation, the Fed's interest rate hikes, and effects from the war in Ukraine have shattered financial markets, causing investors to ignore fundamentals and make decisions based solely on sentiment. The S&P 500 has dropped 19.6% year to date, and growing chatter about a potential recession has begun to startle investors even more.
Having an extended time horizon eliminates the need to focus on short-term headwinds, making it easier for investors to choose great businesses. Although it might feel uncomfortable doing so, now is an optimal moment to purchase shares of several outstanding companies. So here's one best-in-breed retail stock that investors should pounce on amid the ongoing sell-off.
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Nike's business is hanging tough
Athletic apparel giant Nike (NKE -0.18%) has shed 36% of its value since the start of the year. Investors shouldn't be too surprised to see the retail stock falling, however. The company falls under the consumer discretionary umbrella, a sector that typically struggles during economic uncertainty. That said, the retailer's business has been rock-solid up to this point.
In its final quarter of fiscal year 2022, total revenue declined 0.9% year over year to $12.2 billion, in line with Wall Street estimates. Its diluted earnings per share (EPS) finished at $0.90, handily beating consensus forecasts of $0.81. For the full year, the company generated $46.7 billion in sales, for 4.9% growth year over year, and diluted EPS grew 5.3% to $3.75. Its gross margin also expanded 120 basis points to 44.8%.
The strength of Nike's brand has allowed the company to charge through high inflation and rising interest rates. And its $8.6 billion in cash and cash equivalents, debt-to-equity ratio of only 82.6%, and $5.4 billion in free cash flow (FCF) generated in the past 12 months serve as a mighty shield from economic turmoil.
But despite its continuous operational success and robust balance sheet, the stock has been absolutely punished by investors of late. Currently, it carries a price-to-earnings multiple of 27.9, a significant discount to its five-year mean of 43.8. While I'm sure Nike's stock may continue to face downward pressure from near-term headwinds like supply chain restraints and inflation, the company's long-term business trajectory remains unchanged. Those with an extended time horizon should seriously consider adding the stock to their portfolios.
Time to back up the truck and buy Nike stock
Current macro conditions are far from ideal for Nike, but it has prevailed up to this point. As a result of the most recent correction, the stock is now trading at its lowest levels since the COVID-19 sell-off in March 2020, prompting me to believe now is the prime time to buy.
Although the business is not growing at a flashy rate, it is extraordinarily stable and built to last. Combine that with its one-of-a-kind brand, sturdy balance sheet, consistent cash-flow generation, and historically cheap valuation, and Nike appears to be a wise investment at the moment.
