Here’s Why Nike and Lululemon Stocks are Rallying

Nike (NYSE:NKE) and Lululemon (NASDAQ:LULU) have seen their shares rally over the past two days. However, the exact reasons are unclear. For Nike, the biggest reason is likely connected to a bad move by Adidas (OTC:ADDYY). Adidas plunged around 6% at one point yesterday after disclosing that it would take a $650 million loss from canceling the Yeezy line of sneakers. Lululemon, meanwhile, may have benefited from coverage of its Throwback collection.

The Throwback collection is a nod to old-school Lululemon releases. Given how many people miss “old Lululemon,” such a move may have proven welcome to investors as apparel sales grow increasingly difficult to land. A recent hike in Lululemon’s earnings projections from JP Morgan (NYSE:JPM) likely didn’t hurt.

Both companies will face trouble ahead as the result of a souring macroeconomic environment. However, both may be able to fend off the latest storm, as they have in the past. I’m neutral on Nike and bearish on Lululemon, mostly because Nike has seen more recessions than Lululemon has.

Investor Sentiment is Very Different for NKE and LULU Stocks

Nike is currently enjoying some significant support, with a Smart Score of 9 out of 10 on TipRanks. That’s the second-highest score a company can get and the second-highest level of “outperform.” That suggests that Nike is very likely to ultimately outperform the broader market. Meanwhile, Lululemon also has a Smart Score of 9 out of 10 on TipRanks.

However, the two have very different pictures when it comes to insider trading figures.

Insider trading at Nike is clearly starting to come back. In the last three months, insiders bought shares 16 times and sold shares eight times. Over the last 12 months, though, insiders sold stock 29 times but bought stock 18 times.

There hasn’t been an informative transaction of any sort, buy or sell, in the last 12 months. This forces us to only consider the aggregate, which is starting to trend positively. Nike insiders are returning to buy stock, which suggests something big may be coming.

Insider trading at Lululemon, however, is something entirely different. The company had an informative transaction take place last month, as director Henry Kathryn sold $66,490 worth of stock. It’s been four months since any informative transaction took place, which suggests an overall negative stance.

Factoring in the uninformative transactions, though, changes the picture substantially. In the last three months, Kathryn’s sale was the only transaction that took place among insiders. Going back to the last year, insiders bought stock 21 times while selling 13 times. Insiders are clearly interested in buying, especially as the company’s share price was declining.

Nike Stock has Seen More Recessions than Lululemon Stock

We know Nike has been around for decades and has seen recessions come and go. While Lululemon does date back to 1998 for its founding, the company went IPO only in 2007. That’s a much shorter track record.

The good news for Nike is that it’s got at least some positives going into a likely downturn. Nike enjoys dominance in the teenage market; for U.S teens, Nike is the single most popular clothing brand. This was revealed by Piper Sandler’s semiannual survey, “Taking Stock with Teens.” The survey found that this was the 12^th year running that Nike came out on top.

Plus, Nike is likely to benefit from the upcoming holiday shopping season. Some expect holiday shopping to be muted this year as shoppers continue to face nightmarish inflation on virtually everything. Credit card interest rate increases won’t help justify a huge holiday splurge either.

Yet it’s safe to say that some spending will take place. The Des Moines Register already looks for Nike to be a hot seller with this holiday, and there’s little evidence to suggest that won’t be the case. However, with rival Adidas already having inventory issues in China, diminished sales for Nike are likely to be the case as well.

As for Lululemon, the Piper Sandler survey that reasserted Nike’s dominance also gave a nod to Lululemon. Lululemon came in second, just behind Nike itself.

Plus, Lululemon is also enjoying some gains on other fronts. As noted previously, JP Morgan’s Matthew Boss hiked earnings per share estimates for the company’s upcoming third quarter. Now, Boss looks for the company to post 29.6% earnings gains, which would be impressive given what we’ve seen in this economy.

However, with return-to-office mandates on the rise, and people able to go out again, the call for athleisure clothing is likely to falter somewhat. Nonetheless, bringing back some popular styles should help diminish those losses.

Is Nike Stock a Buy or Sell?

Turning to Wall Street, Nike has a Moderate Buy consensus rating. That’s based on 17 Buys and 10 Holds assigned in the past three months. The average Nike price target of $109.92 implies 16.84% upside potential. Analyst price targets range from a low of $79 per share to a high of $185 per share.

Is LULU a Good Stock to Buy?

Lululemon has a Strong Buy consensus rating. That’s based on 18 Buys, two Holds, and one Sell assigned in the last three months. The average Lululemon price target of $400.82 implies 22.67% upside potential. Analyst price targets range from a low of $304 per share to a high of $512 per share.

Conclusion: A Rough but Survivable Time for Retailers

The next few months are likely to be tough for retailers of all stripes. From iconic shoe brands like Nike to up-and-coming athleisure clothing brands like Lululemon, everyone’s going to face the phenomenon of shoppers keeping their wallets closed. That’s why I’m neutral on Nike and bearish on Lululemon. Nike has seen more recessions, while Lululemon’s track record is much less extensive. Nonetheless, both are likely to survive and come out on the other side.

Disclosure