Nike (NKE) split 2:1 on Thursday. Here’s my take on how to trade it. (December 24, 2015)
NKE
I want to look at Nike ( NYSE:NKE ) here. “Oh my gosh! There was such a horrible reaction to earnings. It went up to 135.00 and now it’s down to 63.00.” This is what happens when a stock splits 2-for-1. By next week TC2000 will not be looking like this. You’ll see THIS chart only at half the price here. This is what I want to point out: if you look at the top here of 136.39, so we’ll call it 135.00 just for mental math, divide that by 2 and you’ve got 67.50, we’ll call it $68.00. So if the stock is going to hit a new high post-split it needs to get above this level.
I look at where stocks trade after they split, relative to where they were before they split. The reason is, because sometimes you’ll see a stock that moves higher and higher, it’s in a really nice uptrend. And then the company splits the stock and the stock tanks, it never really recovers.
When you see something like that the takeaway for me is, well part of the reason the stock was moving higher was because there wasn’t that big of float. And so as longer term-investors buy the shares and hold them, I don’t care what company is out there you’re going to have long-term investors, you’re going to have some institutions just buy the shares and hold them, then those shares are taken off the market and so there are fewer and fewer shares being traded. Which means if anybody wants to buy them they’ve going the have to buy up. Well that dynamic can go away when a stock splits 2-for-1 or 3-for-1 or 4-for-one, something like that. So if the stock does not recover and start printing prices higher than the price before the split, then that’s a bad thing. But if the stock ultimately does recover, and start moving to prices that are higher than when the stock split, that is a really good indication that the fundamentals are good and that the stock is still in demand.
So what I’m going to suggest to you on Nike ( NYSE:NKE ) is that you wait for the stock to break above to a new high; because you’re not risking that much by standing on the sidelines to wait for the stock to SHOW you that it’s actually breaking out to new highs. The weird thing about stocks that hit new highs is, they just keep hitting them for a while. If, on the other hand, you’re avoiding this stock and it meanders around, well aren’t you glad you didn’t buy it in the first place? So what I’m telling you on Nike ( NYSE:NKE ) is, it’s fine that they’ve got “swooshes” as their graphic on the side of their shoes, but I would just say right now for Nike ( NYSE:NKE ), don’t just do it. Instead, just watch it.
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