NIKE Inc. (NKE): Are Hedge Funds Right About This Stock?

It is commonly known that hedge funds generate strong, risk-adjusted returns over the long run; therefore, imitating the picks they are collectively bullish on can serve as a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex securities’ evaluations, spend enormous resources on research and use tools not usually available for the general crowd. Of course, this doesn’t mean that hedge funds do not register occasional colossal losses; they do (like Bill Ackman’s Valeant losses in the second half of 2015). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards NIKE Inc. (NYSE:NKE).

NIKE Inc. (NYSE:NKE) investors should be aware of an increase in enthusiasm from smart money lately. NKE was in 63 hedge funds’ portfolios at the end of December. There were 59 hedge funds in our database with NKE holdings at the end of the previous quarter. At the end of this article we will also compare NKE to other stocks including Verizon Communications Inc. (NYSE:VZ), The Coca-Cola Company (NYSE:KO), and Bank of America Corp (NYSE:BAC) to get a better sense of its popularity.

In the eyes of most shareholders, hedge funds are perceived as unimportant, old investment tools of the past. While there are greater than 8000 funds in operation today, Our experts look at the upper echelon of this club, approximately 700 funds. It is estimated that this group of investors oversee the lion’s share of the smart money’s total capital, and by tracking their inimitable investments, Insider Monkey has discovered numerous investment strategies that have historically outrun Mr. Market. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Shares of NIKE Inc. (NYSE:NKE) have advanced by 21% over the past 52 weeks despite having lost 5% since the beginning of 2016. In November 2015, the athletic wear company announced a 2-for-1 split of its NIKE Class A and Class B common stock, which was completed in the form of a 100% stock dividend. Of course, this move is not noteworthy and does not change anything for long term-oriented investors, but it is of crucial importance for day traders. Although it might not be true for all day traders around the world, the day traders I am acquainted with are trading stocks that have share prices in the range of $10-to-$100 per share. Therefore, the freshly-completed stock split will most likely create additional liquidity for all investors.

In October 2015, Oregon-based NIKE Inc. (NYSE:NKE) announced a revenue target of $50 billion by the end of fiscal year 2020, as well as shared some initiatives that would allow the company to achieve high single-digit to low double-digit revenue growth. The company’s wholesale revenues represent the highest portion of NIKE Brand revenues, but NIKE’s management intends to continue driving up growth in its NIKE Brand Direct to Consumer (DTC) operations in the forthcoming future. The NIKE Brand DTC operations include NIKE-owned in-line and factory stores, along with its NIKE-owned websites. NIKE anticipates to reach DTC revenues of $16 billion by the end of fiscal year 2020, which are expected to be driven by exceptional growth in e-commerce. In fact, the company’s management believes that e-commerce sales will reach $7 billion by 2020. To get a general idea of how challenging this milestone might be, NIKE Inc. (NYSE:NKE) reported web sales of $1.19 billion for fiscal year 2015 that ended May 21. However, given that online retail sales are anticipated to grow by more than 57% by 2018, NIKE could be successful in reaching the aforementioned milestone of $7 billion. More importantly, the company is also involved in 3D printing technology, as recent reports suggest that NIKE plans to enable customers to print their own Nikes. But will this “3D printing” business strategy be successful? NIKE’s Flynknit sneakers are being manufactured by feeding files with various designs into a knitting machine, so the “3D printing” idea might work after all.

Now, let’s take a look at the fresh action surrounding NIKE Inc. (NYSE:NKE).

Hedge fund activity in NIKE Inc. (NYSE:NKE)

Heading into 2016, a total of 63 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 7% from one quarter earlier. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Alex Snow’s Lansdowne Partners has the largest position in NIKE Inc. (NYSE:NKE), worth close to $1.03 billion, corresponding to 7.1% of its total 13F portfolio. The second largest stake is held by Lone Pine Capital, led by Stephen Mandel, holding a $718.5 million position; the fund has 3.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions include Cliff Asness’s AQR Capital Management, Andreas Halvorsen’s Viking Global and Donald Chiboucis’s Columbus Circle Investors.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, created the largest position in NIKE Inc. (NYSE:NKE). Scopus Asset Management had $93.8 million invested in the company at the end of 2015. Gabriel Plotkin’s Melvin Capital Management also made a $56.3 million investment in the stock during the fourth quarter. The following funds were also among the new NKE investors: Rob Citrone’s Discovery Capital Management, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Leon Shaulov’s Maplelane Capital.

The final page of this article discusses the hedge fund activity in other companies that have market capitalizations similar to the one of NIKE.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as NIKE Inc. (NYSE:NKE) but similarly valued. We will take a look at Verizon Communications Inc. (NYSE:VZ), The Coca-Cola Company (NYSE:KO), Bank of America Corp (NYSE:BAC), and The Walt Disney Company (NYSE:DIS). This group of stocks’ market valuations resemble NKE’s market valuation.

As you can see these stocks had an average of 67 hedge funds with bullish positions and the average amount invested in these stocks was $8.32 billion. That figure was $4.48 billion in NKE’s case. Bank of America Corp (NYSE:BAC) is the most popular stock in this table. On the other hand The Coca-Cola Company (NYSE:KO) is the least popular one with only 51 bullish hedge fund positions. NIKE Inc. (NYSE:NKE) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BAC might be a better candidate to consider a long position.

Disclosure: None