You’re in good company if you take a long-term approach to investing. After all, Warren Buffett, the famed Oracle of Omaha, stated that his favorite holding period is forever.
Investment success doesn’t just depend on holding stocks for a very long time, of course. You have to choose companies that have the right characteristics for long-term success. This includes businesses that have competitive advantages.
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Investors also need to understand the companies that they invest in. Nike (NYSE: NKE) and Lululemon Athletica (NASDAQ: LULU) have become well-known brands, which gives you a good starting place before conducting a deeper dive.
After learning more about each company, does one deserve that special place as a forever holding?
Nike, which produced some memorable commercials over the years and teamed up with some high-profile athletes, has sold popular footwear and apparel for decades. In short, it became a powerhouse brand.
The company had a competitive advantage for a long time. These included a stream of innovative and new products that kept the revenue juggernaut going.
But Nike has hit a speed bump due to management missteps. This includes an over-reliance on its direct-to-consumer business that alienated wholesale partners, a lack of new products, and more intense competition from companies like On Holding (NYSE: ONON) and Deckers Outdoor’s (NYSE: DECK) Hoka brand.
You can see the effects on Nike’s revenue. The company’s fiscal third-quarter top line dropped 3% after excluding foreign-currency translation effects. Revenue at its core Nike brand fell 2%. The most recent quarter ended on Feb. 28.
These issues have been ongoing and weighed on the stock price. Nike’s shares have dropped 62.6% over the last three years through April 20. During this period, the S&P 500 index gained 71.7%.
Nonetheless, Nike’s valuation doesn’t seem particularly compelling, given the issues it faces in growing revenue meaningfully again. The shares have a price-to-earnings (P/E) ratio of 31, in line with the S&P 500’s multiple.
Lululemon Athletica makes athletic apparel, including pants and shorts. Although high-priced, these have become very popular, particularly among younger women.
With the growing popularity of its products, Lululemon’s revenue grew quickly. But it has slowed recently.
