This Battered Bill Ackman Stock Could Be on the Cusp of a Huge Turnaround

Pershing Square Capital Holdings’ Bill Ackman is perhaps best known for concentrated investments in a handful of “wonderful,” easy-to-understand businesses flush with free cash flow. Undoubtedly, by betting on so few stocks relative to most other big-league funds out there, Ackman and his team can narrow their focus to improving their batting average.

While not every stock Ackman owns at the core of Pershing Square is bound for outperformance in any given year, I do find him to be a top big-name investor to follow and emulate (perhaps second only to the great Oracle of Omaha, Warren Buffett), given his long-term investing horizon, his ability to spot value, and, perhaps most importantly, his independent, often contrarian thinking.

In this piece, we’ll explore one of the most compelling Ackman stocks in Nike (NYSE:NKE), which investors may be able to get in at an even better price than Ackman himself, who’s been adding to his position steadily through the past year.

Nike stock: A battered value gem that stands out in the Bill Ackman portfolio

Indeed, Nike is a business Ackman understands very well. He’s done well in the stock in the past, and history seems likelier than not, at least in my view, to repeat itself, especially since Ackman punched his ticket to the name after a close to 50% drop in the stock.

Indeed, the valuation has effectively been reset, as have analyst expectations, which now look a tad too modest. At the time of writing, shares of Nike go for 25.2 times trailing price-to-earnings (P/E) — a reasonable price to pay for a cherished brand with international appeal and next-level brand affinity.

With the stock still down around 55% from its all-time highs, I view NKE stock as perhaps the cheapest and timeliest name within the Pershing Square portfolio to pick up while it’s in the doldrums.

Though it’s impossible to tell how long Ackman intends to stick around this time, I view the name as a position that could be in for outsized gains should things go right for a change at the Oregon-based firm as it charts new waters under its new chief, Elliott Hill.

Sure, the bears would argue that an external leader is needed for Nike to run higher from these multi-year depths. However, Mr. Hill does have some creative ideas that may very well do the trick for a firm that’s overdue for a bounce. Indeed, it may not take much for the once-envied apparel colossus to get its groove back.

Is an earnings turnaround opportunity on the horizon?

With a new analyst over at Jefferies upgrading the stock (to Buy from Hold) and price target (to $115 from $75) over the “margin and earnings recovery opportunity,” I think it’s hard not to follow in Ackman’s footsteps at $81 and change per share. If Nike can turn a corner and hit Jefferies’ new target, that’d imply a massive 42% gain from Wednesday’s closing price.

Up ahead, Jefferies sees Nike as clearing its inventory to make way for new innovations. Indeed, Nike needs to step outside of its comfort zone with something new to take back share from consumers who’ve shown a willingness to go for other brands.

NikeSKIMS could be big.

Perhaps the most significant sign that Nike is ready to innovate again is its intriguing partnership with Kim Kardashian’s SKIMS. The NikeSKIMS brand, which will kick off in spring, could give Nike a front-row seat in the women’s apparel market and act as the catalyst to help NKE stock reverse course. While it’s too soon to tell if Kim K. has come to the rescue, I do think the new partnership bodes very well for the apparel giant.

Jefferies analyst Randal Konick, who sees “limited downside” for Nike, has a constructive view on the partnership. As to whether a brand like NikeSKIMS can help Nike be a market disruptor again remains to be seen. Either way, investors have every reason to be excited about the collab, which may take a big bite into the share of the likes of rivals, including Lululemon (NASDAQ:LULU).

The bottom line

It’s probably time to get constructive on Nike stock again. It’s oversold and has the catalysts and new growth drivers in place to stage a turnaround. Whether it’s NikeSKIMS or another innovation, I think it’s about time to expect some positive changes for a firm that’s ready for some air time.

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