A gain of 30.66% in 2019 for shares of Nike, Inc. (NKE) tells a story of big buy demand for the shares. This buying is very unusual and has been very consistent recently. The last earnings report was very solid. A great way to uncover tomorrow's winners is to look for great stocks seeing big buy activity, and Nike could be just the opportunity.
Smart money managers are always looking to bet on the next outlier stocks … the best in class. For Mapsignals, it's not enough to look at technicals and fundamentals alone. The key lies in the demand for shares … the big money.
I'll go into the fundamental picture later, but the true tell on the near-term trajectory of a stock lies in its trading activity. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall. For 2019, Nike has seen big demand, causing the stock to rise steadily.
For Mapsignals, when we look for an entry on a leading stock, we look for big money signals. Just to show you what our big money activity signals look like, have a look at all of the big money (unusual institutional) signals Nike stock has made over the past year. Focusing on 2019, you can see a lot of buy signals (green) that line up with a lift in the shares. These signals are rare, but when they come in clusters like below, you often see a rapid move in the stock price:
In 2019, Nike stock has logged 11 big money buy signals, indicative of buying in the shares (see chart above). This shows that a lot of demand can reward shareholders. It has been happening quite a bit recently. These data points suggest that big money appetite for the stock is high.
If you are going to make a bet on the direction of a stock, it is prudent to pay attention to how the shares are trading. Based on history, the odds suggest that this stock is poised for gains. The big money is always looking for an opportunity to buy shares on the cheap. It's all about playing the odds by not fighting the trend.
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by big money signals (outsized institutional activity). We are looking for the big money bets because big money moves stocks. By studying these data points, we can make an educated guess as to which stocks 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.
When we decide on a long candidate, we consider leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. The following are a few areas in which Nike stock has grabbed our attention year to date (YTD):
- YTD outperformance vs. market: +9.77% vs. SPDR S&P 500 ETF (SPY)
- YTD outperformance vs. sector: +6% vs. Consumer Discretionary Select Sector SPDR Fund (XLY)
- Recent big money buy signals
Now, we take it a step further and score the best stocks showing big money trading activity. Below you can see that Nike stock recently made a top 20 buy signal for Mapsignals. This means that the company saw one of the highest-rated signals in our stock universe, indicating that the recent demand for the stock is looking promising:
On top of a long-term technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Nike's numbers over the past few years have been very strong:
- Three-year sales growth rate: +6.42%
- Three-year earnings growth rate: +25.55%
Nike shares are breaking out as the market looks to retest new highs. The company is growing nicely for its large size. We like the long-term story of the stock. The narrative for Nike and other high-quality athletic-wear stocks is one of large growth in the years ahead.
We are always on the lookout for great companies pressing higher year after year. The best companies in a group tend to outperform over the long run. Athletic apparel stocks have been one of the strongest groups in recent years. All of this points to a long-term opportunity for the stock.
The Bottom Line
Nike stock is breaking out with buying pressure. Our big money indicator is signaling that we should take notice. Shares could be positioned for more upside. Given the historical growth in share price and growing fundamentals, this stock could be worth a spot in a growth-oriented portfolio.
Disclosure: The author holds a long position in Nike stock at the time of publication.