Unsurprisingly, billionaire investor Bill Ackman added to his position in footwear giant Nike (NYSE:NKE) during the last quarter. As to whether Ackman is finished building his position remains the multi-billion-dollar question. Either way, it’s not hard to imagine Pershing Square relishing the opportunity to triple down on any further weakness in shares.

At the end of the day, Ackman is a contrarian who’s not afraid to make supersized bets if there’s potentially unrecognized deep value to be had.

Arguably, the concentrated strategy has worked wonders over at Pershing Square. Why spread your bets across many okay investments when you can put more of your chips into a hand you believe has the highest chance of winning?

In any case, I share Ackman’s enthusiasm for NKE stock. It’s a great American business caught in one of the ugliest downdrafts in recent memory. With shares recently retreating to the low-$70s for the second time this year, it should be no mystery why Ackman has been adding to his bet.

Key Points About This Article

• Bill Ackman’s big bet on Nike is a smart contrarian move as the firm looks to get back on track.
• The stock looks dirt-cheap with all the right catalysts in place.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Nike stock is down more than 56%. Could this be a rare deep-value opportunity in a lofty market?

The circumstances haven’t decayed all too much in recent months, but the price has retreated an additional 14% or so. With new CEO Elliott Hill now hard at work on wide-sweeping changes, I think it’s a mistake to bet against a successful Nike comeback.

Some folks, like Needham analyst Tom Nikic, view Nike as a “compelling story stock” in the new year, especially if investors start viewing Hill “as Nike’s proverbial white knight,” Though only time will tell if Hill is the man to save the day and the stock, I do see him as a significant catalyst for change in a company that so desperately needs it.

With shares going for 22.18 times trailing price-to-earnings (P/E), NKE is a historically cheap stock with a dividend that’s also starting to look attractive at just north of 2%. After doing nothing for the past six years, the bar seems low as Hill looks to solve the issues that led to the firm’s downfall.

Whether it be a lack of innovation, longer-term vision, or competitive spirit, I find it encouraging that Nike is recognizing its issues. The next move is to take the right steps to improve under its new leader. Though it’ll take time (perhaps 18 months or more) to get things back on track, I view Nike’s most significant issues as solvable.

If the sneaker giant can get out of cost-cutting mode and start investing wisely in new products that have the potential to get crowds excited again, I do think the sales will follow, especially as consumers become better positioned financially in a post-inflation, lower-rate environment. Indeed, much of the pressure on Nike has to do with the beaten-down consumer.

While Nike’s product launches have been intriguing, at least from a performance-based perspective (most new launches aim to help athletes perform better), I see the casual segment as key to Nike’s revival. Indeed, many Nike consumers and sneakerheads will be buying, not because of the performance aspect but because of comfort and stylish, new designs.

How NKE stock can catch some A.I.R. again

At the end of the day, Nike is an apparel firm that needs to become fashionable again if its stock is to do the same. Relying on the classic styles can only get a firm so far. Nike must communicate its innovation and new designs effectively to consumers who may have tuned out and lost interest in a brand that hasn’t really been reinventing much all that much in recent years.

Eventually, Nike will need something new and refreshing to get consumers buying again as they look to bring their business back from disruptive new footwear innovators on the scene. The A.I.R. (Athlete Imagined Revolution), which involves athletes in the design process, stands out as an effort that could grab consumers’ attention.

Indeed, if A.I.R. can gain traction, Nike may get the jump on innovation and marketing in one fell swoosh.

The bottom line

It’s tough to tell if it’s Hill’s appointment, the robustness of the brand, the depressed valuation, or the turnaround trajectory that entices Ackman about the firm. Either way, NKE stock stands out as a true contrarian bet, one that I think has a high probability of paying off for those who give it the benefit of the doubt at these depths.

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