We recently published a list of 10 Most Oversold S&P 500 Stocks in 2024. In this article, we are going to take a look at where NIKE, Inc. (NYSE:NKE) stands against other most oversold S&P 500 stocks in 2024.
Strong economic growth and the prospect of declining interest rates continue to support gains in global equities. That being said, elevated valuations over the past 2 years, mainly in the US, have put global stocks in a vulnerable position, opines Goldman Sachs Research. By the close of last year, the S&P 500 saw one of its strongest 2-year periods of returns since the year 1928. Much of this increase demonstrates better fundamental growth than investors had expected, with higher valuations acting as a significant contributor.
Diversification Remains the Key, Says Morgan Stanley
As per Morgan Stanley, while several investors continue to favour recently successful approaches, like passive exposure to the broader S&P 500 Index, a more diversified investment strategy might provide better risk-adjusted returns. The benchmark US equity index remains richly priced and excessively concentrated. The 10 biggest stocks in the S&P 500 index make up for ~40% of its total market capitalization, making it excessively dependent on certain mega-cap tech companies continuing to exceed ambitious performance forecasts.
=With the S&P 500 anticipated to post a marginal 7% return in 2025, other regions, sectors, and asset classes might become more attractive, says Morgan Stanley. Generally, the stocks and bonds have an inverse relation, offering a natural hedge in diversified portfolios. However, the current trends have demonstrated that such assets are moving in tandem, with both witnessing losses simultaneously, as was seen in 2022. Morgan Stanley believes that the higher bond yields and lower bond prices have been coinciding with lower stock prices. This trend highlights the importance of diversifying beyond traditional asset classes to mitigate risks.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
What Lies Ahead for the S&P 500?
While there are expectations of equity markets making further progress over the year as a whole — largely fueled by earnings — they have become vulnerable to a correction either due to higher bond yields and/or disappointments on growth in economic data or earnings, says Goldman Sachs. A fall in interest rates has been related to robust equity returns. In the US, the US Fed’s rate-cutting cycles have often coincided with higher stock prices as long as the broader economy avoids recession.
Amidst a favorable backdrop, Goldman believes that 3 main factors complicate the outlook for the stock rally. First, the pace of recent gains reflects much of the optimism the analysts expect regarding economic growth. Second, elevated valuations might limit the forward returns. Finally, the third factor is the unusually high market concentration. As per Peter Oppenheimer, chief global equity strategist and head of Macro Research in Europe, equities tend to be more vulnerable to growth disappointments due to increased concentration of equity market returns.
Therefore, investors are required to focus on companies trading at reasonable valuations, and that have strong fundamentals.
Our Methodology
To list the 10 Most Oversold S&P 500 Stocks in 2024, we used a screener and filtered out the stocks present in the S&P 500 Index. Next, we shortlisted the ones that have declined significantly over the past year. Finally, we mentioned the hedge fund sentiment around each stock, as of Q3 2024. The stocks are arranged in ascending order of their hedge fund sentiments.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of trainers and athletes displaying a wide range of athletic and casual footwear.
NIKE, Inc. (NYSE:NKE)
% Decline In 1 Year: ~31%
Number of Hedge Fund Holders: 75
NIKE, Inc. (NYSE:NKE) is engaged in the design, development, marketing, and sale of athletic footwear, apparel, equipment, accessories, and services worldwide. The company’s stock has struggled in the recent past as a result of macro pressures, fluctuating consumer trends, weakness in wholesale order books, and continued softness in digital sales. Amidst such challenges, Aneesha Sherman, an analyst from Bernstein, maintained a “Buy” rating on the company’s stock, maintaining the price target of $102.00. The analyst’s rating is backed by several factors relating to NIKE, Inc. (NYSE:NKE)’s strategic actions and brand positioning. It has made strong progress in clearing outdated inventory, mainly under the new CEO’s leadership.
This inventory management can result in new product launches, improving the brand’s appeal. Jordan and AF1 lines have demonstrated healthy signs, with strong clearance strategies resulting in improved selling prices and improved product turnover. Elsewhere, Piper Sandler confirmed the positive stance on NIKE, Inc. (NYSE:NKE), maintaining an “Overweight” rating and a price target of $90. The firm has maintained confidence in the company’s direction, emphasizing its proactive measures and innovation under Hill’s leadership.
Coho Partners, an investment management company released its Q2 2024 investor letter. Here is what the fund said:
“While we believe each of those companies is performing in line with or better than our expectations and that the moves lower are unjustified, both CVS and NIKE, Inc. (NYSE:NKE) reported disappointing performance in recent results. For Nike, the company reported mixed fourth quarter Fiscal 2024 results and weak Fiscal 2025 guidance, reflecting top line pressure from lifestyle product slowing, lower digital sales and increased macro headwinds in international markets. To manage through the decline in sports footwear and apparel demand, the senior leadership team is focused on cutting costs and reinvesting in marketing and innovation to drive sales. The company is starting to see green shoots for performance product innovation and has historically emerged stronger from these downturns due to benefits from a leading market position and scale.”
Overall, NKE ranks 3rd on our list of most oversold S&P 500 stocks in 2024. While we acknowledge the potential of NKE as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than NKE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
