Key Points
- One of Ackman’s recent investment targets is this sportswear brand, which has remained at its lowest valuation in years.
- Warren Buffett’s Berkshire Hathaway has found a gem in the $100 billion cosmetics industry.
- Buy Alert: Our 5 best stocks to buy right now (see the list)
Bill Ackman & Warren Buffett find value in these top retail stocks
Investing like a billionaire requires you to be prepared to purchase stock during brief periods of difficulty for the company. Only when the near-term outlook is bad can you invest in a great business below its worth.
The billionaire advantage of Pershing Square’s Bill Ackman and Berkshire Hathaway CEO Warren Buffett has been assembled through a value-based approach that has resulted in multi-billion-dollar riches. As Wall Street searches for the newest and most popular tech stocks, Ackman and Buffett find outstanding bargains in leading retail companies. Let’s see why.
1. Nike
Pershing Square disclosed a portfolio of U.S.-listed equities valued at $10 billion for the second quarter. It brought two new equities to the portfolio, including Nike (NKE -1.20%). Here is a description of Ackman’s investment thesis: He invests in large, profitable companies when they are available at a discount. And Nike certainly fits the bill. With a trailing $51 billion in revenue, it leads the sportswear market; two-thirds of that amount comes from footwear sales.
Nike hadn’t achieved its current status without experiencing its share of ups and downs over the last 50 years. For an apparel company, sales decline during recessions or lulls in consumer demand. The consumer has been battered by high inflation and interest rates for the last two or three years, and Nike got caught in the crossfire. Revenue declined 2% year over year during the May ending fiscal fourth quarter for Nike.
The fiscal year 2025 is being referred to by management as a transition year as it readies itself for sustained expansion.
Ackman would be well advised to invest in Nike right now. The stock currently is trading at the lowest price-to-earnings ratio since 2017. Before revenue had declined recently, analysts on Wall Street were projecting double-digit long-term earnings growth for Nike. It may still be possible.
Above all, though, the majority of Nike’s issues are related to its lifestyle merchandise. Performance product revenue, which includes shoes for basketball and running, increased at respectable rates during the quarter. The apparel industry benefited from the demand for fitness products, and management is pleased with the special chance it sees in women’s clothing.
The global sports apparel market is estimated to reach $293 billion in 2030. Incrementally speaking, it increases by $70 billion over the revenue of 2023. That exceeds Nike’s annual revenue. As a dominant brand with a huge marketing budget, Nike will surely grow again. Hence, the buying of this stock at these relatively lower share prices could indeed pay off handsomely five years from now.
2. Ulta Beauty
Warren Buffett’s company reported a new position in leading cosmetics retailer Ulta Beauty (ULTA -3.18%) last quarter. It’s just another example of a great investor jumping at the chance to buy a premier business in its industry at fire-sale prices.
The beauty industry was booming out of the pandemic and is likely to continue growth in the next few years. With its product lines, as a leader within the industry, Ulta holds a competitive advantage built on diversity across salon styling, skincare, fragrance, and cosmetics. The chain operates over 1,400 stores strategically located in high-traffic areas.
The company also provided annualized revenue growth at 15% over the last 10 years, and earnings popped up at a healthy 23% per year, speaking to the opportunities for this leading retailer to grow and capture market share. However, comparable-store sales fell 1% year over year in the recent quarter, pushing the stock down 31% off its previous high.”.
The rapid growth in the beauty market over the last two years has increased competition. By management’s estimates, there are increasingly more places to buy beauty products nowadays, with more than 1,000 new points of distribution opened in the last couple of years. This has squeezed Ulta Beauty’s market share. Still, Buffett or one of his investing deputies is taking a close look at the Ulta Beauty brand, and the ability of that brand to use its moat to recover lost market share. It starts with the loyalty program, which jumped 5% year over year in the most recent quarter to 43.9 million members. One big source of upside for Ulta Beauty is in offering more value through its loyalty program, to maneuver through those headwinds in consumer spending over the next several quarters.
The stock trades at a forward price-to-earnings ratio of 16 based on an estimate of next year’s earnings. Ulta has tremendous long-term potential. It generates just $11 billion in annual revenue in an industry expected to hit $129 billion by 2028, according to Statista. From this point on, the stock ought to be able to provide outstanding returns. Upon our recommendation, a $1,000 investment would have yielded $710,860!*.
Should one invest $1,000 in Nike right now?
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