After months of outperformance, there's a yawning pit of downside risk lurking beneath many consumer discretionary stocks. Yet strong companies whose shares have lagged the sector deserve a look. Those criteria have led me to footwear and athletic apparel king Nike (NYSE:NKE).

Just shy of a slam-dunk
With a core brand that's synonymous with global sports culture, active living, and big-name endorsers, there's a lot to like about Nike. First, the company's culture of nonstop product innovation should continue to carry its brands to the forefront of consumer awareness, even as the recession drags on. In addition, its product portfolio strides across multiple price points, from Converse All Stars to Air Jordans -- another strength made more noteworthy by tough times. What stands out most, however, is Nike's global footprint: In fiscal 2009, international sales represented 58% of total revenue, up from 53% in fiscal 2007. Indeed, diversifying away from U.S. consumers never looked smarter.

Lately, the market's tidal wave of enthusiasm has largely bypassed Nike shares. Year to date, the stock's trailed both the consumer discretionary group and the S&P 500. Meanwhile, the company's most recently reported quarterly revenue was down only 7%, or flat on a currency-neutral basis. That beats the scales off the embattled Crocs' (NASDAQ:CROX) recent performance.

Of course, that's an easy comparison. To see how Nike stacks up against stronger competitors, I've assembled the table below. Debt and interest coverage metrics suggest how well each company can withstand a prolonged sales slump, while return on invested capital (ROIC) disregards potential differences between companies' financing and accounting choices, offering a truer picture of operating earnings power.


Market Cap

5-Year Average ROIC

Long-Term Debt-to-Equity

Times Interest Earned


$28.4 B





$8.1 B




Under Armour (NYSE:UA)

$1.5 B





$416.3 M




Coach (NYSE:COH)

$10.5 B




N/A -- each company had net positive interest expense. Data from Capital IQ and on Sept. 21.

A pack of winners
Based on the above metrics, these are all strong companies that should be able to weather the recession without resorting to asset sales or other extreme measures. But for a balance of relative safety and growth, I continue to favor the swoosh.

Sure, Coach has a small sneaker line, and its competition-trouncing ROIC is awfully compelling. But if consumer spending doesn't tick upward the way the stock market is forecasting, Nike's active lifestyle market -- and its superior international exposure -- could prove more confident and stable than Coach's affordable luxury business.

What's the worst that could happen with the company and its shares? Well, years of continuing declines in U.S. consumer confidence could sideline Nike with shin splints, instead positioning the ultra-cheap Danskin scoots marketed by Wal-Mart Stores (NYSE:WMT) as the next big footwear trend. In other words, investors may want to tiptoe into this stock, rather than buying in one big leap. With Nike currently trading at a 16.7 P/E on its projected 2010 earnings, compared to a five-year average of 18, an entry point in the low $50s looks attractive.

For those who wish to intelligently wager on a slightly better future economy, Nike ultimately looks like the running partner of choice.

Related Foolishness:

Under Armour and Volcom are Motley Fool Hidden Gems selections. Under Armour is also a Rule Breakers recommendation. Coach is a Stock Advisor selection, and Wal-Mart is an Inside Value selection. VF is a Income Investor recommendation. The Fool owns shares of Volcom and Under Armour. Try any of our Foolish newsletters free for 30 days.

Fool contributor Mike Pienciak doesn't own shares of any company mentioned in this article. The Fool's disclosure policy would just do it, if it knew exactly what "it" was.