Making A Play For Olympic Gold

If CBS is spending $375 million for the rights to broadcast 128 hours of the 1998 Winter Olympics into American homes, you'd think investors could find other companies that might strike gold this month.

The plain truth is that few companies are seeing their share prices move ahead of the athletic games, which start Friday. It's a bit of ennui, Wall Street experts say.

There's an "absence of Olympic euphoria," Standard & Poor's Corp. noted in a report on athletic gear maker Nike Inc. And the handful of U.S. stocks that have risen amid Olympian hype look expensive.

Shares of Web site SportsLine USA, which is expected to benefit from a winter rush of Internet page views, have seen a more than 100 percent gain since the start of the year. [CBS is a part owner of SportsLine USA and CBS MarketWatch.]
Part of the puzzle for investors is that the companies one would expect to gain from a rush of Olympics coverage, like athletic gear makers Nike Inc. or Reebok, are sitting under dark Asian clouds.

Cheaper Goods But Sliding Asia Demand

Yes, sneaker makers will enjoy lower factory costs across Asia. That is, as long as they are using U.S. dollars or British pounds to pay workers. East Asian nations, after all, are suffering a collapse of their currencies, making it cheap for the Nikes of the world to do business there.

Alas, such currency turmoil means Nike, Reebok and others will wage sneaker pricing wars in the United States. The companies' athletic gear will keep getting cheaper and corporate profit margins will shrink. No wonder the majority of Wall Street analysts rate shares of Nike and other sneaker makers a lukewarm "hold."

Matter of fact, Reebok Monday said it sees "difficult challenges" going forward. The company reported gross margin for the year was hurt by the strong U.S. dollar and over-inventory. See Earnings Surprises.

Investors would do well to sidestep the apparel and sneaker companies and instead take a fork in the road less traveled. In other words: roll the dice. In the case of the Olympics, several down-in-the-mouth stocks come to mind.

One is The Good Guys Inc., a Western U.S. chain of electronics shops. Unlike some of its eastern U.S. counterparts, like Best Buy, Good Guys cannot shake a two-year slide of declining same-store sales. Even analysts who want to be believers, among them Goldman Sachs & Co.'s David Bolotsky, are shaking their heads.

"The earnings recovery at the company will be less rapid than we originally anticipated," Bolotsky remarked in a report. Good Guys shares at just under seven have lost about 12 percent of their value in the past week. So who wants to buy a stock that can't sell enough camcorders and Web TVs to boost flagging sales?

As Oppenheimer & Co.'s Michael Metz pointed out in a sweeping report on undervalued companies late last year, the Good Guys' West Coast franchise, with a boovalue of $9 a share, just might look attractive to another electronics retailer. And just maybe, the thinking goes, investors or a corporate acquirer might take a second look at Good Guys if it sells wide-screen TVs, VCRs, and maybe even digital video disc players to Olympics viewers.

At any rate, investors can rest assured that even if the company enjoys no sales boost from the Winter Olympics, they are buying the shares at what would appear to be a rock-bottom valuation. As a multiple of revenue, for instance, Good Guys stock sells for 8 percent of yearly sales. Shares of Circuit City Group, a Virginia-based retailer, sell for 40 percent of sales.

The other idea is Total Sports Authority, the largest U.S. operator of big sporting goods stores. Sales for the company, whose shares are languishing at 12-1/4, could rise as much as 20 percent in the coming year

Alas [again], the shares have lost about 18 percent of their value in the past month. The opportunity here is this: apparel retailers, among them The Limited, are seen benefiting from cheaper Asian garments. U.S. storekeepers get to lower their prices and still manage to keep more of their sales receipts as profit.

Why not a Florida-based sports retailer? Value seekers take note: The Sports Authority's shares sell for 25 percent of yearly sales. Is that fairly or unfairly cheap? You decide.

By Thom Calandra, editor-in-chief
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