Is NIKE (NKE) Stock A Buy or Sell?

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards NIKE, Inc. (NYSE:NKE).

Is NIKE (NKE) stock a buy or sell? Hedge funds were taking a bullish view. The number of long hedge fund bets moved up by 7 lately. NIKE, Inc. (NYSE:NKE) was in 82 hedge funds’ portfolios at the end of December. The all time high for this statistic is 81. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NKE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 75 hedge funds in our database with NKE positions at the end of the third quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

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Do Hedge Funds Think NKE Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 82 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NKE over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Fundsmith LLP, managed by Terry Smith, holds the largest position in NIKE, Inc. (NYSE:NKE). Fundsmith LLP has a $1.0941 billion position in the stock, comprising 3.6% of its 13F portfolio. Sitting at the No. 2 spot is Fisher Asset Management, led by Ken Fisher, holding a $992.1 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Other peers that are bullish comprise Gabriel Plotkin’s Melvin Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Guardian Capital’s GuardCap Asset Management. In terms of the portfolio weights assigned to each position EMS Capital allocated the biggest weight to NIKE, Inc. (NYSE:NKE), around 7.79% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, earmarking 7.55 percent of its 13F equity portfolio to NKE.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Third Point, managed by Dan Loeb, established the largest position in NIKE, Inc. (NYSE:NKE). Third Point had $141.5 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $35.4 million position during the quarter. The following funds were also among the new NKE investors: Joseph Samuels’s Islet Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and George Soros’s Soros Fund Management.

Let’s also examine hedge fund activity in other stocks similar to NIKE, Inc. (NYSE:NKE). These stocks are Pinduoduo Inc. (NASDAQ:PDD), Toyota Motor Corporation (NYSE:TM), Novartis AG (NYSE:NVS), Merck & Co., Inc. (NYSE:MRK), ASML Holding N.V. (NASDAQ:ASML), PepsiCo, Inc. (NYSE:PEP), and AT&T Inc. (NYSE:T). This group of stocks’ market valuations match NKE’s market valuation.

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As you can see these stocks had an average of 44.9 hedge funds with bullish positions and the average amount invested in these stocks was $4069 million. That figure was $6286 million in NKE’s case. Merck & Co., Inc. (NYSE:MRK) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 bullish hedge fund positions. NIKE, Inc. (NYSE:NKE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NKE is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7% in 2021 through March 12th and beat the market again by 1.6 percentage points. Unfortunately NKE wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on NKE were disappointed as the stock returned -0.5% since the end of December (through 3/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.

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