Nike (NKE) stock is one of the best-performing Dow Jones stocks Thursday thanks to news Bill Ackman's Pershing Square Capital Management took a new stake in the footwear and apparel retailer.
According to a 13F regulatory filing released Wednesday, Pershing Square bought more than 3 million shares of Nike stock in the second quarter. This works out to a roughly 0.2% ownership stake of the retailer and makes NKE the ninth largest position in the Pershing Square portfolio.
Per Whale Wisdom, Ackman's hedge fund is estimated to have paid an average of $75.37 per share for its Nike stake, which was worth roughly $230 billion at the end of Q2.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The addition of Nike to the Pershing Square equity portfolio increases its exposure to consumer discretionary stocks. Indeed, the fund's top three positions – Hilton Worldwide Holdings (HLT), Chipotle Mexican Grill (CMG) and Restaurant Brands International (QSR) – fall under this umbrella.
The new Nike stake also marks a return to the stock for Pershing Square Capital Management. In late 2017, the firm invested in Nike and made an estimated $100 million profit, according to Reuters.
Why would Ackman invest in Nike?
"Nike has been lacking any real innovation that reaches consumers," says Brian Mulberry, client portfolio manager at Zacks Investment Management. He adds that even the Jordan brand has struggled recently, while Lululemon Athletica (LULU) and Fabletics have taken the lead in the apparels market.
"Nike is also missing key brand ambassadors that were so critical to growth," he adds. "Tiger Woods, Lebron James, etc. are all aging athletes and have either left or are likely not to renew the large deals from the past. But that leaves them with no real superstar from any sport to help engage with younger consumers in particular."
However, this is likely why Ackman took a stake in Nike, Mulberry says. Not only did he scoop up NKE at an attractive valuation, but it gives him "a chance to make a positive impression on the future direction of the company, which he was able to do successfully seven years ago."
As such, the portfolio manager believes the board of directors and the executive team will "be happy to engage with Ackman rather than having him become a hostile activist."
Is Nike stock a buy, sell or hold?
Ackman scooped up Nike at a discount, considering it has been one of the worst Dow stocks of the year – with only Intel (INTC) and Boeing (BA) suffering bigger losses.
Still, Wall Street remains bullish on the blue chip stock. According to S&P Global Market Intelligence, the average analyst target price for NKE stock is $91.27, representing implied upside of about 12% to current levels. Additionally, the consensus recommendation is Buy.
Speaking for the bulls is Wedbush analyst Tom Nikic, who has an Outperform (the equivalent of Buy) rating and $97 price target on Nike.
Nikic admits that Nike is facing several challenges, as evidenced by the disappointing fiscal fourth-quarter earnings report its released in late June. The company also lowered its full-year sales forecast amid muted wholesale orders and a softer outlook in China.
However, the analyst is hopeful "that with management seemingly more clear-headed about the mistakes they've made, they can lean on NKE's vast resources (bigger budgets than any competitor in terms of research and development, marketing, etc.) to begin the road to recovery in 2025."
Related Content
-
Don’t Miss Apple and Walmart Back-to-School Tax-Free Holiday Savings this SummerSales Tax Select states host sales tax holidays during the summer. Here’s what you can purchase.
-
The Rule of Retirement InversionThe rule of retirement inversion says that to have a great retirement, you must ask yourself what would ruin a great retirement — and then plan to avoid it.
-
How Divorced Retirees Can Maximize Their Social Security Benefits: A Case StudySusan discovered several years after she filed for Social Security that she is eligible to receive benefits based on her ex-spouse's earnings record. This case study explains how her new benefits are calculated and what her steps are to claim some of the money she missed.
-
From Piggy Banks to Portfolios: A Financial Planner's Guide to Talking to Your Kids About Money at Every AgeFrom toddlers to young adults, all kids can benefit from open conversations with their parents about spending and saving. Here's what to talk about — and when.
-
I'm an Investment Pro: Here's How Alternatives Could Inject Stability and Growth Into Your PortfolioAlternative investments can often avoid the impact of volatility, counterbalancing the ups and downs of stocks and bonds during times of market stress.
-
Dow Bleeds Red Due to Big Blue: Stock Market TodaySix of the official GICS sectors were in the green, led by communications services, technology and energy stocks.
-
July Fed Meeting: Live Updates and CommentaryThe July Fed meeting could be a lively economic event, with Wall Street keyed into what Fed Chair Powell has to say about interest rates and President Trump.
-
A Contrarian Approach Pays Off for This Small-Cap FundSmall-cap stocks have been hit hard by tariff worries, but this T. Rowe Price fund has outperformed thanks to its manager's against-the-tide approach.
-
A Financial Planner's Guide to Unlocking the Power of a 529 Plan529 plans are still the gold standard for saving for college, especially for affluent families, though they are most effective when combined with other financial tools for a comprehensive strategy.
-
An Investment Strategist Takes a Practical Look at Alternative InvestmentsAlternatives can play an important role in a portfolio by offering different exposures and goals, but investors should carefully consider their complexity, costs, taxes and liquidity. Here's an alts primer.
