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The Motley Fool: The power of the swoosh

The Motley Fool

Nike (NYSE: NKE), a giant in the athletic footwear and apparel market, is getting stronger, diversifying into sports such as soccer to add to its dominance in basketball and tennis. Because of its size (its market value recently topped $90 billion), Nike negotiates from a position of strength with retailers and maintains much pricing power. That makes retail partners potential advocates for Nike, aligning their interests and promoting overall growth.

Its last quarter was rather good, despite headwinds from a strong dollar that shrunk the value of the earnings it generated abroad. Its fiscal 2016 revenue grew by 6 percent over fiscal 2015, with earnings advancing 15 percent and gross margins growing, too. Its revenue has been growing by double digits in much of the world.

A strike against Nike is that MVP basketball superstar Steph Curry of the Golden State Warriors slipped out of the swoosh-company’s endorsement net and signed with up-and-coming rival Under Armour. Some worry that the huge sums of money that Nike and its peers have had to pay for endorsements and exposure may hurt long-term profitability.

Nike has a strong network and has done a good job of boosting productivity wherever it can. As long as demand for its products remains high, it has the ability to deliver strong earnings results. (The Motley Fool owns shares of and has recommended Nike and Under Armour.)

Ask the Fool

Q: What are “frontier” funds? - C.L., Greenville, North Carolina

A: They are mutual funds focused on certain countries. You’re likely familiar with “emerging markets,” which typically include countries with developing economies that often grow more briskly than slower and steadier economies such as our own (as well as Japan and much of Europe). The “BRIC” countries of Brazil, Russia, India and China are good examples, as is Mexico.

Frontier countries, though, are ones that generally aren’t as developed economically as emerging-market countries. Their economies are typically smaller and riskier. Examples include Argentina, Botswana, Croatia, Kenya, Lebanon, Nigeria, Pakistan, Ukraine and Vietnam.

If you’re considering investing in mutual funds focused on frontier countries, be careful, as they can be quite volatile and often charge relatively high fees, too. It’s smart to include investments from outside the United States in your portfolio, but you needn’t take on too much risk. You might just invest in the whole world market via a simple (and often inexpensive) “total stock market” fund.

Q: What are financial “points” I sometimes read about? - J.A., Seattle

A: There are different kinds of points. For example, indexes such as the Dow Jones industrial average or S&P 500 are often quoted in points, not dollars, even though they’re based on stock prices.

When you get a mortgage, meanwhile, you’re often able to get a lower interest rate if you choose to pay some points upfront, each of which is 1 percent of the value of the loan. (With a mortgage of $150,000, one point is $1,500.) And a “basis point” is one one-hundredth of a percentage point. So an interest rate that rises from 4 percent to 4.5 percent has advanced 50 basis points.

My dumbest investment

My dumbest investments weren’t really in bad companies. But they were in companies where I wasn’t sure where they were going and I misjudged.

One such company was HBO & Co. (the technology company, not HBO the TV-show producer). I felt comfortable that I understood where it was going, and that there was plenty of room for growth and profit. Then, a few months after it was acquired by McKesson, it was announced that earnings would be restated – due to what turned out to be fraud. I felt that what I based my decisions on was flawed and sold at a loss.

The second blunder involved a supermarket chain that I liked, but when I didn’t see the price going anywhere after having given it a fair shot, I got out. The supermarket was Whole Foods. - H., online

The Fool responds: No one can know the future, so investors have to learn as much as they can and make decisions using informed estimates. Fraud often takes us by surprise, but it can help to be on the lookout for any numbers that seem too good to be true or management that doesn’t seem candid.

McKesson is indeed doing well today. Whole Foods, where you simply weren’t patient enough, has been struggling a bit lately, challenged by mainstream supermarkets that are also offering organic fare.

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