Sports enthusiasts find a sneaker's bounce may suggest a stock worth buying

June 04, 1995|By Bloomberg Business News

NEW YORK -- When Nike Inc.'s Air Pegasus running shoes helped ease Miles Spencer's shin splints and knee pain, the Connecticut investment banker ran to buy Nike stock.

Investors like Mr. Spencer are taking their insights about sports and sporting goods to the stock market, using their years as weekend warriors for more than just friendly competition. Since the beginning of the year, when he put his money where his feet were, Mr. Spencer's investment has grown about five percent.

The trained eye of a shrewd consumer is, after all, one of the best investment tools, mutual fund master Peter Lynch said in his best-selling 1989 book "One Up on Wall Street."

Now vice chairman of Fidelity Management & Research Co., Mr. Lynch recommended that Fidelity fund managers buy stock in the maker of L'eggs after his wife spoke highly of the stockings' quality.

Sports enthusiasts can tear a page from Mr. Lynch's book, investing in what they use and like. "If you follow Peter Lynch's theory, people who participate in an activity get a pulse of what's going on," said Allen Furst, managing director of D&F Group, a Washington firm that advises companies on marketing sports events. "People who use a product get a better feel."

Nike, for instance, can inspire as much enthusiasm on Wall Street as its athletic footwear and apparel inspire on the playing field.

"Nike is just a phenomenal personal investment," said Mr. Spencer, vice president of Cove Associates Ltd., a Norwalk, Conn. investment bank.

Nike's stock price has risen more than 30 percent in the last year, at least partly thanks to consumers who liked Nike equipment as much as Mr. Spencer, driving the company's net income to $95.3 million in the fiscal third quarter that ended Feb. 28 from $63.2 million in the same 1994 period.

What sets the Beaverton, Ore.-company apart is "its ability to design and execute a marketing strategy from the product itself, to in-store promotions, to customer service, so that everyone feels like they're being well served," said Peter Russ, a securities analyst at Shelby Cullom Davis & Co.

Investors always need to investigate the companies behind their favorite products. Even though Reebok International Ltd. shoes give Nike a run for fans' money, net income barely rose to $65.9 million in the first quarter of 1995 from $65.8 million in 1994's first quarter.

That has contributed to a 17 percent drop in Reebok's stock price and firings of 150 employees since the beginning of the year, or about 4.5 percent of the Stoughton, Mass., company's work force. "People who wear Reeboks would probably be better off buying Nike stock now," said Jeffrey Pollack, publisher of Sports Business Daily, a national newspaper.

Just as Peter Lynch gained investment ideas from his wife's shopping, Mr. Furst of D&F Group took his cue from the sports activities of his friends' children.

"People I know had to wake up at 5 in the morning to take their kids to play hockey," because of the scarcity of local ice rinks, said the lawyer and accountant who lives in Rockville, Md.

Mr. Furst and a group of investors financed the construction of a twin ice-rink in Reston, Va., that has paid investors a 14 percent annualized return. With an average $25,000 to $50,000 from each investor, the group raised $3 million. "It opened in October 1993 and has been going gang-busters," he said.

To be sure, well-liked sports can't offer any more profit guarantee than other investments, which typically offer returns commensurate with risk.

Converse Inc. sneakers, for instance, haven't made the North Reading, Mass., company a great stock buy, even though the shoes are favored on the basketball court for low price and durability.

Since Converse was spun off from Interco Inc. last November, its stock has fallen about 40 percent.

"Converse had the No. 1 position and blew it," Mr. Russ said. "They didn't make the transition from a basketball shoe to a total athletic shoe."

Investing in the sporting life can also raise problems when the equipment is made by subsidiaries of larger companies.

Champion Products may make well-known athletic apparel, but it's just part of a Chicago company better known for frozen dessert cakes: Sara Lee Corp.

Sara Lee's personal products segment -- which comprises several major divisions that include Mr. Lynch's old favorite, L'eggs -- accounted for $6.4 billion of its $15.5 billion total net sales for the fiscal year that ended July 2, 1994. And with Sara Lee's net income down to $199 million in 1994 from $704 million in 1993, gauging Champion's impact can be tricky.

"It's definitely hard to play sports products purely, because they are usually parts of other companies," said R.J. New, co-manager of Investment Advisers Inc.'s Emerging Growth Fund.

Such obstacles didn't stop Mr. Spencer from forming Capital Express LLC of Lyndhurst, N.J., an investment group specializing in sports-related companies. Joggers who aren't also investment bankers, meanwhile, should consider other investment criteria before dashing to their brokers.

Personal knowledge "is not something you'd want to use as the only analysis in your decision," Mr. New said, "but it's not a bad starting point for an individual investor."

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