Byte # 58: Not Every Dip Is a Buying Opportunity
Dear Readers,
Welcome back to this week’s Investing Byte. Most of our recent conversations have focused on powerful secular trends worth leaning into - AI infrastructure, energy, electrification, nuclear, and more.
Today, we’re flipping the lens.
This Byte is about negative structural trends - sectors and companies where the long-term trajectory is bending downward, not just wobbling cyclically. As investors, recognizing these patterns early is just as important as spotting the next big wave.
1. Alcohol & Beverage Companies: A Structural Shift, not a Cyclical Patch
A little over a year ago in Byte #8, I wrote about the steep declines across alcohol and beverage stocks - driven by changing consumer preferences, rising interest in non-alcoholic alternatives, and early warnings from industry leaders.
Brown‑Forman’s CEO captured it perfectly in Q4 FY2025 earnings call:
“The spirits sector is facing unique pressures - including soft consumer demand, competition from alternatives like cannabis and GLP‑1 drugs, and changing preferences among younger consumers.”
Fast forward to today, and the analysts finally agree this is structural, not cyclical.
The strongest evidence? Berkshire Hathaway quietly sold 95% of its stake in Constellation Brands (STZ) in mid‑May.
Diageo has also been hit hard - a sharp stock decline followed by an 80% dividend cut. Younger consumers are drinking less, inflation is squeezing discretionary spending, and operational issues plus a CEO transition have compounded the pain.
This is no longer a temporary slowdown. It’s a long-term consumption shift.
2. Global Consulting Giants: AI Is Reshaping the Business Model
Consulting firms like Accenture (ACN) are facing a severe, multi-quarter downtrend. The stock has fallen more than 50% from its 2025 highs and now trades near $125.
The culprit? AI-driven structural disruption.
For decades, consulting firms earned hefty setup fees for building systems, processes, and integrations. Today, foundational AI models and agentic AI can automate large portions of that work - faster and cheaper.
Even Accenture’s latest earnings call reflected this reality:
EPS beat expectations
But full-year revenue growth was trimmed to 3%–4%
New bookings declined sequentially
Major client deals were pushed into fiscal 2027
This isn’t a temporary slowdown. It’s a business model being rewritten.
3. Nike & Lululemon: Two Icons, Two Different Structural Declines
Both Nike (NKE) and Lululemon (LULU) are stuck in multi-year downtrends.
Nike: Now at a 12-year low, down ~34% YTD
Lululemon: At an 8-year low, losing nearly half its value in recent months
They share macro headwinds, but their declines stem from different strategic missteps.
Why Nike is Falling
Nike’s downturn is largely self-inflicted:
Wholesale Exit Misfire: Cutting ties with long-time retail partners to force a DTC model with weakened distribution and visibility. Competitors rushed in.
Innovation Stagnation: Nike “lost its cool,” allowing On and Hoka to dominate premium running and lifestyle categories.
Inventory Glut: Excess old merchandise forced relentless discounting, crushing margins.
China Weakness + Tariffs: China revenue is declining, and patriotic consumer shifts favor local brands like Anta and Li-Ning.
Earnings tell the story: Nike expects $1.51/share this year - down from $3.25–$3.75 just two years ago.
Until earnings recover, the stock remains structurally undervalued for a reason.
Why Lululemon is Falling
Lululemon’s issues are different - a mix of market saturation and internal instability:
North America Slowdown: Domestic sales fell 4% as consumers trade down to cheaper alternatives and Amazon “dupes.”
Weak Product Launches + PR Turbulence: Misaligned designs and a proxy fight led by founder Chip Wilson hurt brand perception and store traffic.
Guidance Cuts: Revenue growth now expected to be flat to down 1%. EPS guidance slashed from ~$12.20 to ~$11.00.
Leadership Vacuum: Interim co-CEOs are holding the fort until new CEO Heidi O’Neill (a 28-year Nike veteran) steps in.
The Only Bright Spot: Greater China sales surged 30% YoY - the only meaningful growth engine.
Final Thoughts
Before I close, I want to share a personal lesson that fits squarely with today’s theme. I recently exited my position in Adobe, a company I long admired for its balance sheet strength and cash‑flow durability. What I missed - and what ultimately blindsided me - was the structural downtrend driven by accelerating AI disruption combined with major management turnover, with both the CEO and CFO departing. I focused too heavily on balance sheet strength and not enough on how these shifts were reshaping the long‑term narrative.
The result: I took a 50% loss.
It was a humbling reminder that even fundamentally strong companies can enter multi‑year declines when their business model is being structurally questioned. And sometimes, despite all the analysis, these downtrends are genuinely hard to identify early.
So going forward, I’ve set a clear rule for myself: I will cap my losses at 30% - no exceptions. Anything beyond that usually signals something deeper rather than a temporary dip. This isn’t about perfection; it’s about discipline, humility, and committing to the guardrails that keep your portfolio resilient over time.
Wishing you a wonderful July 4th weekend. See you next Tuesday.
Take care and keep Investing Smarter.
Pooja
