Tech powerhouse

Let’s start with Microsoft (NASDAQ: MSFT), which was down 5.5% yesterday. It’s one of the world’s largest technology companies.

Microsoft is one of the first shares I’d buy if I was building a portfolio from scratch today. That’s because it offers both growth and defence.

On the growth side, the company has exposure to several high-growth industries including cloud computing, the metaverse, and video gaming. So, it’s well placed to increase its revenues and profits in the years ahead.

On the defensive side, many of its products are essential for businesses today. So revenues should hold up if economic conditions deteriorate.

Of course, there are risks to consider. If tech stocks continue to fall, returns could be disappointing.

However, with the stock now trading on a P/E ratio of 25, I like the long-term risk/reward skew here.

Brand power

Next up, athletic footwear and apparel giant Nike (NYSE: NKE), which declined 5.9% yesterday.

Nike has experienced some supply chain and cost challenges recently. And these issues may persist in the short term. However, given that the stock has fallen from around $180 in November to $106 today, I think a lot of the risk is now largely factored into the share price.

When these short-term challenges do subside, Nike should be well placed to grow its sales and profits. Not only is it likely to benefit from its shift to selling direct-to-consumer, but it’s also likely to benefit from the ‘casualisation’ fashion trend, which is showing no signs of slowing down.

Nike shares currently sport a forward-looking P/E ratio of about 28. That does look high at face value. However, given the company’s incredible brand power, I’m comfortable with the higher valuation.

Growth potential

Finally, I’d also buy shares in Lam Research (NASDAQ: LRCX), which fell 5.6% yesterday. It makes semiconductor manufacturing equipment.

This is a stock I’m quite excited about. In the years ahead, many countries are planning to build semiconductor manufacturing plants on home soil in an effort to avoid chip shortages. The US is one such country that’s set to increase domestic manufacturing significantly. Recently, it announced $53bn in government funding to get the ball rolling.

This ‘reshoring’ of semiconductor manufacturing should provide a huge boost for Lam as its technology is crucial for chip manufacturers. So, the future here looks very bright, to my mind.

It’s worth pointing out that the semiconductor sector, as a whole, is experiencing weakness now. This could persist for a few more quarters and potentially have a negative impact on this stock.

However, in the long run, I expect Lam Research to do well. With the stock trading at just 11 times this year’s forecast earnings, I see it as a bargain.

An S&P 500 stock 

Nike (NYSE: NKE) has proven to be an extremely reliable stock over the past few years. In fact, in the past half-decade, the Nike share price has risen 86%, while those who bought during its IPO in 1980 would be sitting on a staggering gain of over 60,000%, far exceeding the S&P 500. However, over the past year, the sportswear company has sunk over 30%. I feel this offers a compelling entry point for me. 

For example, in the full year ending May 31, Nike managed revenue growth of 5% to $46.7bn and net income of $6bn, up 6% year-on-year. At the same time, shareholder returns were also increased. During the year, total dividends totalled $1.8bn, up 12% from the prior year. And the company repurchased $4bn of its own stock. 

There are some worries moving forward though. For example, in the current cost-of-living crisis, consumers may stop buying premium branded sports clothes and shoes in order to preserve cash. This could have a knock-on effect for Nike. Further, in the recent trading update, it was announced that operating overhead costs have increased by 11% to $11bn, partly due to wage increases. This factor could strain profit margins moving forwards. 

But with a price-to-earnings ratio of under 30, the Nike share price is far cheaper than it has been historically. For example, post-pandemic, the company’s P/E ratio was over 50. With it undertaking an $18bn share repurchase programme over the next few years, I also believe that earnings per share can grow. For these reasons, I would add some Nike shares to my portfolio after its recent drop. 

A UK share to buy

When looking at which shares to buy in the face of a potential recession, I like companies with strong brand loyalty. With a drinks portfolio of over 200 brands, Diageo (LSE: DGE) offers just that. These labels include Pimm’s (one of the big names during the summer) and Guinness (a firm favourite in nearly all pubs). Other globally recognised brands include Don Julio and Captain Morgan. 

Due to the extensive histories of these names, brand loyalty is high. This gives Diageo significant pricing power, meaning it can pass on rising costs to customers more easily than some other companies can. 

There are some risks, however. For example, the group is winding down its business operations in Russia, and this is likely to lead to large costs. At the same time, the company has a price-to-earnings ratio of over 20, which is above the FTSE 100 average. 

But due to its defensive qualities, I’m willing to pay this premium. Therefore, I may add more Diageo shares to my portfolio.    

So, with 2022 on the horizon, will Nike be able to carry on with its impressive form, and should I be buying its shares? Let’s take a look.

Nike Direct

One aspect of Nike that excites me is the growth it has witnessed in its direct-to-consumer sales. In its latest trading update, these sales were up 28%. Sales of this nature increase profit margins for Nike as it allows the firm to keep the cut that would go otherwise to other retailers. It also allows the business to control its pricing more closely. More than 65% of Nike’s sales came in at full price for Q1, exceeding its own expectations and showing this in action. This is also exemplified through its gross margin — which sat at 46.5% for Q1. 

Another strength I see in Nike is the growth in its digital sales. At a time when many shoppers are transitioning to purchasing goods online, Nike has seemingly been able to make the most of this. Its digital sales rose 29% for Q1, showing the potential it possesses. Where it stands out from competitors is through its unique forms of digital interaction with consumers. Being a user of the SNKRS app myself, I’m aware of the exciting features it offers such as exclusive releases and events. As digital shopping continues to grow, Nike should reap the benefits from this. 

Nike concerns 

Yet one concern for me is supply chain issues. This is a global headache impacting many businesses (as seen when I reviewed Tesla stock earlier this month), but it does pose an especially big threat to Nike. The firm’s production lines have taken a hit due to local lockdowns in factories in Vietnam and Indonesia. Further issues such as shipping container shortages have impacted the firm. It announced this week that it had cancelled store orders in one of its outlets until summer next year due to supply issues — showing the potential severity of the issue. Should this continue for too long, I’d expect to see this negatively reflected in the Nike share price.

Will I buy?

The growth in its digital sales only shows a slither of the potential Nike has to offer. Its recovery from the pandemic can be seen as a testament to the firm’s strengths. But the supply chain issues remain. Although the situation seems to be easing in some areas, a spike in cases could plunge Nike back into trouble and dent its share price. While I like the look of Nike shares, I will be holding off until the situation around its supply chains is clearer.

What Roblox does

Roblox is an online gaming platform. Importantly, it also allows users to create games using Roblox’s proprietary system. In fact, it has over 50m different games that can be played right now. 

The company started out in 2006, but really saw growth accelerating during the pandemic. This is logical, given the lockdowns and time we all had to spend at home. Roblox is child-friendly which is another reason for the large growth, as the social aspect of gaming together has picked up. 

After strong growth during 2020, it went public in early 2021. Roblox shares were set at $45, and rallied in the initial aftermath. They currently trade at $124, meaning that I’d have almost tripled my investment within a year.

A brave new world

The vision for buying Roblox shares now is less to do with its finances and profit/loss and more about the trend towards the metaverse. I’ll hold my hands up and say that I’m by no means an expert on the subject. However, it’s clear that many smart people are investing a lot of time and money in this sector.

For example, Facebook has completely rebranded to Meta pivot to virtual reality, with CEO Mark Zuckerberg being a huge advocate. Another case is Nike. Only last week it was announced that Nike has created Nikeland within Roblox, allowing players to kit out their avatars in Nike products.

The very nature of Roblox is that it’s a virtual world, in which anyone can create anything (within reason). The ability for players to create different games within the system naturally helps the company to get bigger. If we continue to see large brands get involved in this space then it should benefit Roblox shares. Higher user participation, larger spends and greater publicity are all positives here.

Risks to be aware of 

I see a couple of risks in this area though. Firstly, Roblox is losing money. In fact, the latest Q3 results show that in the nine months through to the end of September, it lost more than in the same period last year. This was a loss of $348m in comparison to the 2020 figure of $194m.

Secondly, could the whole metaverse play simply be a fad? If it is, then investors could quickly move on to the next big thing, leaving me holding shares in Roblox at a loss.

But I’m still strongly considering buying shares in Roblox as a play on the metaverse growth in years to come. 

The most eye-popping takeaway from Nike’s results was the strength of product demand in Greater China — the company saw total sales in the territory leap an astonishing 30% in the three-month period, to $886m.

Following the results Nike chief financial officer Andy Campion commented that “while we are very mindful of the macroeconomic volatility in China, our brand has never been stronger and our marketplace has never been more healthy.”

Brand power is key

Nike is undoubtedly reaping the rewards of the rising fitness craze in China, a trend helped by the growing popularity of ‘wearable’ apparel and other technological developments. But the results also undermine the idea that economic cooling in the region is smashing consumer spending power — with the right product mix and brand strength, the growth markets of China still provide plenty of upside.

Oriental-inspired retailer Supergroup (LSE: SGP) certainly thinks so, the business having unveiled plans to create a joint venture in the country with Trendy International Group (or TIG) back in July. The Cheltenham-based retailer advised that “China is a very exciting market and [is] forecast to overtake the US as the largest apparel and footwear market in the world,” and reckon the venture will be self-funding within two years of launch.

Unlike many retailers who have charged into China with all guns blazing, Supergroup is taking a more measured approach. TIG — which already operates thousands of luxury and ‘hip’ fashion outlets across the region, like those of Ochirly and Trendiano — will be responsible for day-to-day operations. This will leave Supergroup to deal with “strategic brand support, design services and marketing.”

Ready… Ted… Go!

Supergroup will be hoping the venture will emulate the success being seen over at Ted Baker (LSE: TED), a clothing manufacturer also carrying plenty of clout in the branding stakes. The London designer has also been expanding its store portfolio in China in recent times, including the opening of its first street-level store in Hong Kong in April.

Ted Baker is working hard to develop the power of its label amongst these new customers, and noted in March that initial reactions to its brand have been promising. It added that “we are positive about the long term opportunities in this territory,” and with good reason — retail sales in Asia galloped 19.2% higher in the 12 months to January, to £11.8m. Encouragingly the business advised of “further progress” in it global markets back in June.

Burberry poised to bounce

The situation in China has been far from rosy over at Burberry (LSE: BRBY), however. Sales in Hong Kong collapsed by double-digit percentages during April-June as challenging market conditions intensified, although its performance in the rest of the country was far better — demand in Mainland China “grew by a low single-digit percentage” in the period from a year earlier.

The impact of anti-extravagance measures by China’s government has severely dented demand for high-priced goods, a factor that ‘streetsmart’ labels like Supergroup and Ted Baker are far more immune to.

But while this issue could provide further headaches for Burberry, in the long term I remain convinced that the steady emergence of a rising middle class should power demand for the fashion house’s apparel resoundingly higher in the years ahead, along with those of its two London-listed retail peers.

European markets moved lower this morning, despite news that UK consumer confidence rose to -10 in September, its highest level since 2010, according to the forward-looking GfK consumer sentiment survey. Eurozone consumer confidence also rose, hitting a two-year high of 96.9, according to new figures published by the European Commission’s statistics bureau, Eurostat. One of the region’s biggest heavyweight gainers was Danish wind turbine manufacturer Vestas Wind Systems, which was up 10% at 7am ET on reports that it is to form a joint venture with Mitsubishi Heavy Industries to exploit offshore wind opportunities. At 7am ET, the FTSE 100 was down 0.87%, the DAX was down 0.40%, and the CAC 40 was down 0.29%.

Today’s economic reports should provide further insight into whether US consumers are feeling the benefits of the recovery. At 8.30am ET, August’s personal income report is expected to show that incomes rose by 0.4% last month, after rising by 0.1% in July. Also at 8.30am, August’s consumer spending report is expected to show a 0.3% increase in spending, up from 0.1% in July, while August’s Core PCE price index is expected to remain unchanged from July, at 0.1%. Finally, September’s University of Michigan consumer sentiment index is due at 9.55am; analysts expect a reading of 78.0, up from 76.8 in August.

On the corporate front, all eyes are likely to be on BlackBerry, which reported a quarterly loss of $0.47 per share earlier this morning, narrowly beating analysts’ forecasts for a loss of $0.49 per share.

Other stocks that may be active include Nike (NYSE: NKE.US), after the sportswear firm’sfirst results as a Dow constituent last night beat expectations. Nike stock was up by 5.2% in pre-market trading, after closing up 2.1% yesterday. Accenture, which also reported last night, didn’t fare so well, and the firm’s shares fell by 3.9% in after-hours trading yesterday, after its guidance for the current quarter came in below analysts’ expectations. Microsoft and Ford may also be heavily traded, after website AllThingsD reported that Microsoft’s retiring CEO Steve Ballmer could be replaced by Ford CEO Alan Mulally.