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Mixing Friends and Stocks Foolishly

By Robert Eberhard – Updated Apr 6, 2017 at 6:53PM

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Friends can be a good place to start when looking for companies to research.

Before becoming a Fool, my investment knowledge was fairly limited. I knew that I wanted to get in the market somehow, but didn't know where to begin. Luckily for me, my friend Shawn was interested in investing, and we spent many hours discussing different companies and the market. I'm interested in one of his early recommendations, athletic apparel company Under Armour (NYSE: UA).

Don't worry, he's Foolish
While not active (yet) on the Fool or CAPS, Shawn shares one characteristic with many Fools: He invests for the long term and buys companies, not tickers. He found Baltimore-based Under Armour after walking around and finding Under Armour clothes seemingly everywhere he went. Like any Fool, this led him to investigate the company and helped him determine that it was something he wanted to buy.

One factor that led him to like the company was his adoration of Kevin Plank, the founder, president, and CEO since Under Armour's inception in 1996. Plank is the public face and voice of the company and stands to benefit as much as anyone from its success, owning slightly over 23% of the company's shares. This is different from Nike (NYSE: NKE), for example, where Chairman Phil Knight is not as involved in the day-to-day operations of the company, though he still owns 18% of the shares outstanding.

Not always sunny in Baltimore
Under Armour does not own any fabric or process patents on its products, which could lead to more competition. I have personally seen similar moisture-wicking shirts from Champion, a product of Hanesbrands (NYSE: HBI). However, Under Armour feels its strong brand will help overcome similarly produced items by other producers.

Under Armour has been compared to lululemon athletica (Nasdaq: LULU), and while Under Armour has not yet produced a pair of yoga pants, the comparison has merit. Both companies were founded to meet a market niche and both have been successful at filling those niches. However, scalability becomes the real challenge as both attempt to expand outside of their "comfort" areas, with Under Armour attempting to compete in the shoe arena, while lululemon expands into running apparel and products for men.

It's all about the shoes
While Under Armour lacks an Air Jordan to drive its shoe brands forward, it has been carving out market share from much-larger Nike over the past few years. Its shoe line has a lot of room for growth, and an endorsement deal signed by Tom Brady, which gave him an ownership stake in the company, sure got Shawn excited (and he's a Steelers fan!). Also, the company might finally have a visible face in the lucrative basketball shoe market in NCAA Tournament star Kemba Walker of the University of Connecticut, my alma mater.

What's a Fool to do?
Fools often advise against buying a stock because of a tip from a friend. However, there is nothing wrong with a friend pointing you in the direction of a stock, and then you doing your own due diligence to figure out if it will work in your portfolio.

Please use the comments section below to tell us your experience with friends and stocks. And don't forget to add Under Armour to your free stock watchlist.

Foolish contributor Robert Eberhard has a healthy heterosexual man crush on Tom Brady, but does not own shares of any companies mentioned here. Follow him on Twitter @GuruEbby. The Motley Fool owns shares of lululemon athletica and Under Armour. Motley Fool newsletter services have recommended buying shares of Under Armour, Nike, and lululemon athletica. Motley Fool newsletter services have recommended creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Under Armour, Inc. Stock Quote
Under Armour, Inc.
$7.60 (-1.93%) $0.15
NIKE, Inc. Stock Quote
NIKE, Inc.
$97.02 (-1.55%) $-1.53
Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
$293.20 (-4.28%) $-13.10
Hanesbrands Inc. Stock Quote
Hanesbrands Inc.
$7.64 (-4.50%) $0.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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