NIKE, Inc. (NKE): Are Hedge Funds Bullish on This Consumer Discretionary Stock Now?
We recently compiled a list of the 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where NIKE, Inc. (NYSE:NKE) stands against the other consumer discretionary stocks.
Many experts and analysts are concerned about a slowdown in consumer spending. However, reports show that consumer behavior is changing rather than slowing down. According to a report by Colliers Retail Market Intelligence, retail foot traffic rose by 4.4% in June, indicating strong consumer activity despite flat overall sales.
While furniture and home improvement stores saw declines due to reduced monumental purchases and a sluggish housing market, grocery stores, and apparel retailers performed better. Grocery sales grew by 1.7%, with a nearly 5% increase in foot traffic, as consumers managed their budgets despite cutting costs. Apparel sales also increased by 3.8%, driven by early back-to-school shopping and wardrobe updates, leading to an 8.3% rise in foot traffic.
In July, consumer spending saw a modest increase compared to June, with gains across 10 of 12 retail categories, as reported by the CNBC/National Retail Federation (NRF) Retail Monitor. Retail sales, excluding autos and gas, rose by 0.7% month-over-month, slightly up from June's 0.5%, but the year-over-year growth slowed to 0.9%, down from 3.4% in June.
Core retail, which excludes restaurants, saw a 1% monthly increase. Significant sector performances included a 3.4% rise in gas station sales and a 2.1% increase in restaurant spending month-over-month. Conversely, the healthcare, personal care, and garden supplies sectors experienced slight declines.
June and July data together indicate that consumer spending remains resilient, supported by strong household finances and a strong job market. While some sectors, particularly furniture and home improvement, are struggling due to reduced consumer confidence and a slow housing market, other categories are performing well.
The data suggests that consumers are still willing to spend, especially on essential and seasonal items, though they may be more cautious with larger purchases. Despite some areas of decline, the overall retail environment appears stable, with consumers continuing to spend where they find value, which indicates a cautiously optimistic outlook for the remainder of 2024.
Latest Updates on Interest Rates and Potential Effects On Consumer Spending
In the July meeting, Fed Chair Jerome Powell highlighted the Fed's ongoing focus on achieving maximum employment and stable prices. He noted significant progress in the economy, with inflation dropping from 7% to 2.5% and a balanced labor market with low unemployment at 4.1%. The Fed chose to keep interest rates steady within the 5.25% to 5.5% range and continue to reduce its securities holdings to maintain a restrictive stance, which is aimed at aligning demand with supply and reducing inflationary pressures.
Powell mentioned that while inflation has eased, the Fed is not yet ready to lower rates and requires more consistent positive data before making such a move, possibly as early as September. According to the CME Fed Watch Tool, all the experts are expecting cuts in September. 50.5% of the experts predict a 25 basis points (bps) reduction in the interest rates while 49.5% expect a 50 bps cut.
Rate cuts generally have a positive effect on consumer spending. When interest rates are lowered, borrowing becomes cheaper, which could lead to increased consumer borrowing and spending. This increased affordability can boost consumer confidence and promote spending on discretionary items. That's a good set up for discretionary stocks, and with that, let's look at the 10 best consumer discretionary stocks to buy according to hedge funds.
Our Methodology
For this article, we used the Finviz stock screener to identify over 50 large-cap consumer discretionary stocks then narrowed our list to 10 stocks that were most widely held by institutional investors as of Q1, and listed the stocks in ascending order of hedge fund sentiment.
Why are we interested in 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)
Number of Hedge Fund Holders: 71
NIKE, Inc. (NYSE:NKE) is an American multinational corporation that designs, develops, manufactures, and markets athletic footwear, apparel, equipment, and accessories. It is one of the best consumer discretionary stocks to buy according to hedge funds. The stock was held by 71 hedge funds in the first quarter and the stakes amounted to $3.6 billion. Fisher Asset Management is the top shareholder of the company and has a position worth $953.926 million, as of March 31.
The company offers a range of performance gear and accessories, including bags, sports balls, socks, eyewear, watches, digital devices, bats, gloves, protective gear, and other sports equipment. It markets these products under several brands such as Nike Pro, Air Jordan, and Converse. The company is also well-known for its famous "Just Do It" slogan and the distinctive Swoosh logo.
NIKE (NYSE:NKE) has built one of the most recognized brands in the world through effective marketing, high-profile athlete endorsements, and innovative product development. The company's success is not merely a result of chance but a culmination of decades of strategic effort to connect deeply with consumers.
It has cultivated a distinct style that goes beyond performance. Its products have become a significant part of global fashion, mainly due to its association with iconic athletes. One of the most notable examples is the Air Jordan line.
Launched in 1985, Air Jordan generated $126 million in its first year and has since grown to achieve $7.1 billion in revenue. This remarkable growth is evidence of the company's effective brand management and market positioning. It continues to attract endorsements from top athletes such as Tiger Woods, Cristiano Ronaldo, and LeBron James, which strengthens its presence in the sports world.
Moreover, NIKE’s (NYSE:NKE) influence extends to the highest levels of global sports, as it sponsors major leagues like the NFL, MLB, and NBA. This widespread sponsorship network, which includes everything from professional teams to corporate apparel, further solidifies the company’s role in the sports industry.
In summary, NIKE’s (NYSE:NKE) combination of a powerful brand, a strong presence in global sports, and a constant focus on innovation makes it a standout player in the industry, with the potential for continued success and growth.
Mar Vista Focus strategy stated the following regarding NIKE, Inc. (NYSE:NKE) in its first quarter 2024 investor letter:
“NIKE, Inc.’s (NYSE:NKE) recent earnings report was a mixed bag. While revenue met expectations and earnings exceeded them, the stock price dipped due to management’s cautious outlook for fiscal 2025. The company is currently undergoing a period of internal restructuring and product line adjustments, which is expected to lead to flat revenue growth in the first half of the coming fiscal year. However, this transition aims to position Nike for long-term success.
Our conviction in Nike remains high, and we expect it to emerge stronger and more competitive once the restructuring is complete despite the softer revenue forecast. Nike still anticipates earnings will grow around 10% in calendar 2024 and will accelerate to 15% in 2025 as execution normalizes.”
Overall NKE ranks 9th on our list of the best consumer discretionary stocks to buy according to hedge funds. You can visit 10 Best Consumer Discretionary Stocks To Buy According to Hedge Funds to see the other consumer discretionary stocks that are on hedge funds’ radar. While we acknowledge the potential of NKE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an 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.