Florida-based investment management firm Polen Capital is bullish on Nike Inc (NYSE:NKE). In its Q4 letter to investors (you can download a copy here), Polen Capital said that Nike rebounded in the fourth quarter, gaining more than 20% after a tough couple of years. Although things are still looking tough for the sportswear maker in the United States, Nike’s growth in the global markets remains ‘robust’, according to the investment firm. In this article, we’ll take a look at Polen Capital’s comments about Nike and will try to learn what Polen Capital thinks about the maker of athletic footwear, apparel, equipment, accessories, and services.
In its letter, Polen Capital said that Nike Inc (NYSE:NKE) has been facing headwinds in North America as a result of a combination of a rapidly changing retail landscape, a fierce competition from Adidas, and a shift in consumer preferences away from performance to more fashion-forward sneakers. Its growth in the United States has “basically ground to a halt, although growth outside the United States, which is more than half of NIKE’s revenue, has remained robust,” according to the investment firm.
However, Polen Capital believes that Nike presented a new winning strategy at its 2017 investor conference in October to grow over the next years.
At its recent investor conference, Nike Inc (NYSE:NKE) laid out an ambitious agenda to streamline and quicken its product development, customization and time to market over the next few years. At the same time, it will shift away from what it terms “undifferentiated retail” partners and focus more on its own and partners’ online offerings. This will, in time, lead to a business model that allows for mass customization and near-to-demand manufacturing that will leverage NIKE’s competitive advantages in scale and brand strength. We believe it also should lead to accelerating revenue growth and significant margin expansion. It appears the worst of the North America difficulties are now in the past and we expect significant improvement from here. We continue to expect NIKE to deliver high-single-digit revenue growth and mid-teens earnings per share growth over the long term.
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Shares of Nike have surged more than 27% during the last 12 months. The stock started moving up late October when the company hosted its 2017 investor day and provided an overview on how it will accelerate its next phase of long-term, sustainable and profitable growth. It expanded Consumer Direct Offense and announced more investment in its Triple Double Strategy to drive growth through three core areas of the business. Further, the sportswear giant announced its new NikePlus membership program to provide member-only access. Fueled by new consumer-focused strategies, the company expects to drive high-single-digit revenue growth, expand margins and mid-teens earnings per share growth on average over the next five years.
Besides Polen Capital, hedge funds covered by Insider Monkey also see a value in Nike Inc (NYSE:NKE). At the end of the third quarter there were 45 funds in our database holding stakes in the sportswear maker. Recently activist investor Bill Ackman disclosed a passive stake in Nike Inc in an investor presentation. Billionaire Jim Simons, David Blood and Al Gore, and quant fund Two Sigma also held large positions in the stock.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
You can enter your email below to get our FREE report. In the same report you can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12-24 months. We initially share this idea in October 2018 and the stock already returned more than 150%. We still like this investment.
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