Market Overreaction: 2 Stocks to Buy on the Way Down

Group 1: Company Performance - Nike Inc. has faced significant challenges in 2024, with its stock down 29% as of December 21, 2024, primarily due to a failed strategy in its direct-to-consumer (DTC) channel, which alienated key wholesalers like Foot Locker Inc. [1] - For fiscal Q2 2025, Nike reported an EPS of 78 cents, exceeding consensus estimates by 15 cents, while revenues fell 7.7% year-over-year to $12.35 billion, still surpassing the consensus estimate of$12.11 billion [2] - Nike Brand revenue decreased by 7% year-over-year to $12 billion, and Nike Direct revenue fell 13$5 billion, driven by a 21% drop in digital sales [2][20] Group 2: Future Guidance and Strategy - Nike's forward guidance indicates that FQ3 2025 revenues are expected to decline by double digits, significantly worse than the consensus estimate of a 2.4% drop year-over-year [3] - Gross margins are projected to decrease by 300 to 350 basis points, which includes restructuring charges from the previous year [3] - CEO Elliot Hill emphasized the need for near-term pain for long-term gain, focusing on rebuilding trust with wholesale partners and shifting to a full-price model in Nike Digital [4][13][22] Group 3: Market Conditions and Competition - Nike's sales have been negatively impacted by weak performance in China and tightening consumer spending in North America, leading to a deceleration in sales across DTC, wholesale, and digital channels [19] - Competitors like On Holding AG and Hoka have capitalized on Nike's struggles, achieving double-digit growth while Nike experienced contraction [1]