Editors Note:

Buying good companies on a market dip is normally a sound strategy. There is always risk that the dip could continue lower. Buying companies with good relative strength tends to reduce losses if the markets continue to decline.

Nike Inc and Paypal should survive any continue decline with minimal losses.


NKE - Nike Inc - Company Profile

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. It offers NIKE brand products in nine categories: running, NIKE basketball, the Jordan brand, football, men's training, women's training, action sports, sportswear, and golf. The company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. In addition, it sells sports apparel; and markets apparel with licensed college and professional team and league logos. Further, the company sells a line of performance equipment, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment under the NIKE brand for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories under the Jumpman trademark; action sports and youth lifestyle apparel and accessories under the Hurley trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Additionally, it licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. The company sells its products to footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops, and other retail accounts through NIKE-owned retail stores and Internet Websites, mobile applications, independent distributors, and licensees. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon. Company description from FinViz.com.

Expected earnings March 22nd.

Nike has defied gravity recently after being severely depressed back in October. There are multiple reasons. They have received upgrades based on their decisions to reduce their SKUs, limit their number of distributors and require retailers to merchandise more effectively. It did not hurt that Bill Ackman took a minority position and is recommending changes. Lastly, all the Olympic athletes, except for the North Koreans, will be wearing Nike clothes and sports gear. Nike will get a big advertising boost from the games.

Nike shares did not decline materially last week when the Dow was imploding. This suggests they should rise again in a positive market. I am picking an inexpensive option and we will not use a stop loss over the first several days just in case the market volatility continues.

This is a risky position because of the market instability. Do not enter this position if you cannot afford to risk the $2.

Buy April $70 call, currently $1.94, no initial stop loss.

PYPL - PayPal - Company Profile

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. PayPal Holdings, Inc. was founded in 1998 and is headquartered in San Jose, California. Company description from FinViz.com.

Paypal shares were crushed last week after Ebay said they were going to phase out the payment processor by 2023. Ebay is going to become the merchant of record (MOR) and handle payments through Dutch payment processor Adyen after 2020. Paypal sold off hard despite the long term transfer.

This is 2018. Nothing is changing for the next two years. In 2021 Ebay will be the "default" payment processor but Paypal will remain an option in the checkout process. Customers with Paypal accounts will more than likely continue to process their payments through Paypal. For Ebay the conversion process is going to take years. Paypal is guaranteed to remain an option on checkout through 2023 or 5 years from now. In reality they will probably always be a payment option on Ebay.

Paypal has more than 200 million users and 18 million retailers that accept Paypal. Ebay cannot just turn them off or purchasers on Ebay would revolt.

The Paypal CEO put it this way. Ebay is 13% of our total payment volume (TPV) and growing at 4% per year. The other 87% of our TPV is growing at 23% per year.

On the positive side once the agreement with Ebay expires in 2020, Paypal can then become the MOR for any number of other retailers. They are currently prohibited from doing that now. The CEO said there are at least 10 top global marketplaces that process tens of billions of TPV per year where Paypal could become the primary MOR. These would be far more valuable than the slow growing Ebay revenue at 4% per year.

The CEO said retailers could now begin to see Paypal take on a more aggressive posture now that the split with Ebay is finally winding down.

Paypal guided for 2018 for revenue growth of 15-17% and earnings growth of roughly 25%. There is nothing wrong with Paypal and the stock was punished unfairly.

Buy April $80 call, currently $2.80, no initial stop loss.


No New Bearish Plays