A 16 percent gain this year for shares of Nike Inc. (NKE) tells a story of healthy institutional buying while other athletic names such as Foot Locker Inc. (FL) and Under Armour Inc. (UA) lag. Since the shoe maker’s fiscal fourth-quarter earnings announcement on June 29, the stock continues to lead the sector, clearly steered by institutional buying. Betting on leading stocks, accompanied with strong institutional activity, can be a great recipe for long-term investors.
Being a growth stock which recently reported strong earnings and issuing favorable guidance, Nike makes a strong case for bullish institutional investors. Its recent breakout to a new 52-week high could also be a great opportunity for investors to pick up shares. For MAP, the strongest indicator of positive price momentum is by measuring potential institutional accumulation.
Notably, since late June of this year, MAP has flagged three potential institutional buy signals in Nike, which is important when looking for long-term winning stock candidates. In the chart below, the stock broke out to that 52-week high, while its 50-day moving average crossed over the 100-day moving average
Chart source: TradingView
MAP’s process focuses on identifying companies with healthy fundamentals accompanied by outsized unusual institutional activity to try and measure potential accumulation/distribution at the single stock level. By studying these data points, we can hypothesize which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest quality stocks.
Many of the best-performing stocks over the years have exhibited continual institutional support, telling a story of where big firms may see opportunity. A company like Nike, which continues to grow its dividend, grow its revenues and grow its earnings may keep institutions holding for years to come.
When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for Nike being:
- Recent 52-week high achieved ($60.53 on Aug. 3)
- Year-to-date outperformance vs. the overall market (+~5.8% v.s S&P 500)
- Year-to-date outperformance vs. the sector (+~4.6% vs. XLY)
- And most importantly, institutional support
On top of a great technical picture, one should also make an effort to see if the fundamental picture supports a long-term investment. The areas you want to consider important for continual institutional support are:
- Increasing one-year EPS growth rate (+16%)
- Increasing three-year EPS growth rate (+19%)
- Increasing three-year dividend growth rate (+14.60%)
Nike checks the box on great technicals and fundamentals, while holding a high rankings in MAP’s scoring process, which may point to positive price momentum.
Taking a look at the overall picture of the institutional accumulation/distribution activity that we monitor for the broad market, signs continue to point to continual accumulation as quality growth equities power ahead. As discretionary stocks have gained this year, we want to own leading stocks. Nike fits the bill and could remain attractive to keep institutions invested. Its stock has been gaining since its earnings report on June 29th, and we believe shares' recent outperformance will continue going forward.
The Bottom Line
Nike represents a potential buying opportunity for long-term institutional investors. Given the strong institutional accumulation signals most recently in July, its high stock ranking and EPS growth rate, shares could look cheap now in the years to come.
To learn more about MAP’s institutional signals please visit our site.
Disclosure: The author holds a long position in NKE at the time of publication.
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