Top Picks of 2010: Under Armour

Last week I showed off my #1 top stock pick of 2010, Ivanhoe Mines (NYSE: IVN). Well I am back again this week to announce the #2 top pick:

Under Armour (NYSE:UA)

I have owned and trade Under Armour several times since the IPO. This year it has performned past my expectations rising 72% since December 2009. Originally I bought UA for $25.99 on December 10th, 2009.  Since then it has soared to $44.88 in a short 10-months time. I still love Under Armour and believe they have great potential as they are still in the early stages of what will become a retail empire similar to that of Nike and Addidas.

Five Reasons to Continue to Own Under Armour

1. I see potential in opportunities for new product adjacencies, and expanding distribution worldwide.
2. Footwear growth will continue to increase. Revenues for these products have increased over 69% in 2009.
3. Adding to this I still see growth in Under Armour’s apparel sales, which are up 8%.
4. Under Armor had yet to even break into the international market, which offers a plethora of new opportunities for this growing brand.
5. I believe sales will rise drastically in 2010 driven by international sales, new women’s clothing line, and expansion within their own footwear line.

End of the day this stock has performed exceptionally well for me and I don’t see this trend changing anytime soon. They continue to deliver a great product and like Warren Buffet always says “If the company is great, the stock will follow.”  Well expect Under Armour to continue to follow the trend right on up.

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Why Nike Should Buy Under Armour Soon

After researching both Nike (NKE) and Under Armour (UA) recently I think Nike needs to start realizing the benefits to be had if they were to purchase Under Armour. This would be a big acquisition and I believe it could help secure Nike’s dominance for the next decade or so.

Why Nike Should be Interested?

As of right now, Nike has tried to duplicate many of Under Armour’s top products such as Cold Gear and Heat Gear. So far they have had very little success in taking away any form of market share against these products. Adding to the concerns to Nike Investors, Under Armour has been dominating the younger generations, 25 years below. Another recent concern was the release of Under Armour’s running shoes and cleats. This has to be a threat to the long-term value of Nike. Right now this isn’t a concern to Nike, however with the younger consumers wearing Under Armour’s brand the momentum is in their favor to one day steal a large piece of the pie.

What Nike would have to do?

For Nike to have any chance at buying Under Armour, the deal would need to happen soon. Under Armour is still several years away from being a major threat to Nike, however by that time it will be to late for Nike to make any form of move. Right now Nike is sitting on roughly $3 billion in cash. This could be used to acquire Under Armour even at their current depressed price. As long as Nike could offer a premium price to entice shareholders to sell all would be set. Currently, insiders own less than 7% of the company. That would make it difficult for Under Armour’s CEO Kevin Plank to put up much of a fight against Nike. He would need to have a killer speech to explain to shareholders why Under Armour will be better off not selling. Going against both the uncertainties of the economy and the retail sector, this would be a hard sell. Plus with the current cash problems Under Armour is having, sale would make sense.

Nike Needs to Act Fast

Nike needs to take advantage of the depressed consumer spending market to acquire Under Armour. Currently, they are an iconic global brand and have both the management and the balance sheet to make such a move. Nike could help introduce Under Armour to the developing nations, a sector Nike has had recent success in. Purchasing Under Armour right away will give Nike time to introduce the brand and help decrease competition. Obviously, we know over time Nike could beat Under Armour but instead they should acquire them at a discounted price and use the brand as an asset. This would also ensure Nike keeps growing. Currently I am holding neither company. However, Nike should definitely take a serious look at this acquisition before they are fighting head to head against Under Armour for sales.

Back on Track With Under Armour: Bullish Times Ahead and I see the Stock Soaring to

With retail numbers improving, I have been seeing a growing popularity among consumers for the Under Armour (UA) brand. As a result, I am back on board with the Under Armour and think it has bullish times ahead. So far in 2009 I have been both held Under Armour in my portfolio and shorted it. Originally I purchased Under Armour on May 26th of 2009 at $20.20. After a 45%+ increase in less than 6 months, I decided to sell and short Under Armour on October 7th, 2009 at $33 per share as I was not confident with the strength in their earnings and their short-term profitability. Since then the stock has fallen 20% and now I think it is time to re-invest and buy back in, this is why.

Under Armour’s Long-Term Potential as Strong as Any

I have never doubted Under Armour’s long-term potential just the short-term swings and selling at critical resistance levels. I believe Under Armors long-term appeal is as strong as any as they have lots of potential within their growing brand. I see potential in opportunities for new product adjacencies, and expanding distribution worldwide. We have seen this growth in footwear alone where revenues have increased over 69% in 2009. Under Armour’s footwear products are only starting to take off. In 2010, they plan on launching a line of Basketball shoes headlined by their main sponsor NBA Rookie sensation, Brandon Jennings. Adding to this, they plan on expanding the footwear line altogether with more running shoes, athletic cleats, etc. We have yet to see the full potential of this aspect of Under Armour’s business, which eventually I believe can be very successful and a main competitor to powerhouse Nike. Adding to this I still see growth in Under Armour’s apparel sales, which are up 8% along with potential growth internationally. Under Armor had yet to even break into the international market, which offers a plethora of new opportunities for this growing brand. They also are expanding across the United States with the launch of Under Armor Apparel Stores. Their curtailed the expansion in 2009 which was a prudent in my opinion due to the weakness in the economy. Long-term however I see this as a strong potential revenue stream.

What to Expect From UA

Under Armour is in the early growth stage within highly competitive market. Short-term opportunities could be limited due to lower levels of disposable income, high unemployment, and less consumer spending. However long-term I see Under Armour as a strong growing brand with expanding distribution. I believe sales will rise drastically in 2010 driven by international sales, new women’s clothing line, and expansion within their own footwear line. Overall my 12-month valuation for Under Armour is roughly around $37. Look for it to be a strong year within 2010 and make sure to capitalize on Under Armour’s strength.

Protect this House: Sell Under Armour at -

For the short-term, sell Under Armour (UA). These are my reasons why:

Sell Under Armour ASAP

For one, look at the way Under Armour’s share price has skyrocketed in September. Up 36%, that has to first entice some investors to sell. Adding to this, I expect Retail Numbers for fall to be worse than expected as unemployment continues to rise and excessive consumer spending continues to decline. Plus I am still wary that Under Armour’s brand is strong enough to beat out an economic recession. Especially one where the consumer is under so much pressure. Lets not get me wrong, I love Under Armours brand (I own their shoes, shorts, and shirts) and have great respect for the direction of the company. Unfortunately, I don’t believe enough people are sold on the product, which will cause difficulties when going up against Nike and Addidas. In a strong economy, Under Armor would be fine. Unfortunately, that’s not the case and the challenges of a weak consumer will send the stock lower. Its not that they don’t have a great product. It’s the fact that many consumers are shifting to lower quality, lower price brands. Plus don’t get fooled by the rising stock market. There still is a huge disparity between Main Street and Wall Street as I characterized in last week’s article. Most Americans are cutting back on discretionary spending and are planning on continuing this habit, which I see as a huge hit to the resurgence in the economy.

Earnings Scare Me

With the third quarter coming to an end much anticipation is on Under Armour earnings report. October 27th is the scheduled date to report and Under Armour’s management expect earnings to come in between $0.80 to $0.82 for this year. In this case, management has been very cautious with their long-term outlook. I think Investors should be scared off by this cautious behavior. With Under Armour trading around $30 that means that is a multiple of around 36 times forward earnings. Basing it on this alone it would be irresponsible to continue to hold onto this stock.

“Protect this House”

In my opinion, you should sell Under Armor this week at around $33-$33 a share. We are entering risky times especially among retailers so go by Under Armor’s slogan and “Protect this House.” Under Armour’s been a solid investment since I recommended it in June as its up around 45% yet every good investor needs to know when to pull the plug and the time is now.