The 144th running of the Kentucky Derby is less than two weeks away.
Although I’ve always considered the first leg in horse racing’s Triple Crown the unofficial start to summer, it’s also a time for large consumer goods and sports-related businesses to get their products in front of a huge audience, many of them affluent.
In recent years, the Derby’s seen a change in many of its sponsors.
In January, it was announced that Angry Orchard would become the official hard cider of the Kentucky Derby with Corona Extra becoming the race’s import beer sponsor. Budweiser signed on a short time later as the domestic beer sponsor of the race. All three replace Stella Artois which had been the sole beer sponsor of the race since 2012.
In 2016, prior to the running of that year’s Kentucky Derby, I wrote an article about three Kentucky stocks to buy before the big race.
This year I’m recommending seven sports stocks to buy heading into summer.
Sports Stocks to Buy: Churchill Downs (CHDN)
I couldn’t write about the Kentucky Derby without including the race’s owner, Churchill Downs, Inc. (NASDAQ:CHDN). Not only does it own the famous race run the first Saturday in May, it also owns the racetrack of the same name.
My InvestorPlace colleague Lawrence Meyers highlighted its many wonderful attributes last November. He reminded investors that in addition to Churchill Downs, the company owns three other racetracks that generate revenue from betting, food and beverage sales, etc. It also owns several casinos and hotels but it is the TwinSpires segment that really draws a crowd.
“The TwinSpires Segment is the one I love the most, because it is the online and mobile horse wagering business,” Meyers wrote November 6, 2017. “It is high margin and growing rapidly. In addition, if California permits legal online card rooms, it already has all the infrastructure set up.”
The business is certainly a lot more diversified than most investors realize, but what I really like is the stock’s performance. It hasn’t had a negative annual return since 2009 and is up 9% year to date.
No matter which horse comes in first on May 4, CHDN shareholders win.
Sports Stocks to Buy: Lululemon (LULU)
The past month has been a big one for shareholders of Lululemon Athletica Inc. (NASDAQ:LULU). It announced its fourth-quarter earnings March 27 after the close of trading.
They were excellent.
On the top line, net revenues increased 16% year-over-year excluding currency with same-store sales up 11%, most of the increase was from online sales, which saw the relaunch of its website during the fourth quarter. On the bottom line, adjusted earnings per share increased 33% to $1.33 from $1.00 a year earlier with gross margins and operating margins increasing by 200 and 290 basis points respectively during the quarter.
LULU stock closed trading March 27 at $78.71. The next day it closed almost 10% higher. In less than a month its stock’s gained almost 23% and is closing in on $100 for the first time since becoming a public company in 2007.
As sports stocks go, I see Lululemon ideally positioned to grow in the years to come despite the fact it’s without a CEO after Laurent Potdevin resigned in February as a result of an inappropriate relationship at the company.
With executive chairman Glenn Murphy temporarily in charge — Murphy used to run Gap Inc. (NYSE:GPS) — I’m sure Lululemon will find an excellent CEO to lead it into the next phase of its growth.
Sports Stocks to Buy: Walt Disney (DIS)
Walt Disney Co (NYSE:DIS) launched its ESPN+ streaming service April 13. This is the first of two streaming services meant to dissuade cord cutters from leaving the Magic Kingdom. The second, set to launch in 2019, will feature movies from the entire Disney stable of studios including Lucasfilm, the producers of Star Wars. Early reviews suggest ESPN+ is good but won’t be enough to win the day.
“If you’re a mainstream-sports fan, you’re unlikely to find enough on ESPN+ to justify the subscription, even at $4.99 a month,” wrote Tom’s Guide April 14. “But if you’re really passionate about sports outside of the Big Four of baseball, basketball, football and hockey, ESPN+ has something to offer, especially with its extensive soccer lineup. It’s no cable killer, but ESPN+ will serve the needs of sports fans with a very particular set of passions.”
At present, ESPN+ isn’t meant to replace ESPN, but rather to supplement a sports fanatics’ thirst for live sporting events not available through traditional cable. However, as Disney becomes more comfortable with its direct-to-consumer (DTC) business, Disney’s fears about abandoning cable will surely disappear.
Long term, I don’t see Disney failing in its move to over-the-top television content. I just don’t. So, trading right around $100, you’re getting a bargain at the moment.
Sports Stocks to Buy: Nike (NKE)
Despite all the current problems related to corporate culture at Nike Inc (NYSE:NKE), I see the company making the changes necessary to ensure upper management becomes more diverse, a prerequisite for any modern company, but especially so for a global brand that wants to remain relevant and respected by consumers.
However, its the North American business that investors ought to be concerned about.
In the third quarter ending February 28, North American footwear sales declined by 8% over a year earlier. While apparel sales, which account for about one-third of the company’s revenue, were flat. It doesn’t need to grow the North American segment by more than a couple percentage points a year. With a few tweaks in management, I see it being able to deliver positive sales growth in the future.
On the upside, the rest of the world is delivering double digit growth or close to it — EMEA (9%), China (19%) and Asia/Pacific & Latin America (11%) — and that bodes very well for NKE shareholders.
It might be facing some serious issues right now but the company known for the slogan “Just Do It” will do just that.
Sports Stocks to Buy: Ferrari (RACE)
Sometimes in the stock prognostication business, you have to eat a little crow. I’m about to do that with Ferrari NV (NYSE:RACE).
Last June, I suggested that the luxury sports car maker’s stock was one of the ten worst stocks to own heading into the second half of the year. Trading around $80, I didn’t think that anyone would want to own this stock over $100 and trading for more than 30 times earnings.
Well, I was wrong.
Today, it trades around $120 and has a P/E multiple of 43, with no signs of slowing down up 17% year to date.
In February, blown away by the company’s 30% net margins, I made it one of my Valentine’s Day stocks to buy. If it keeps delivering strong results, I’ll probably be recommending it next Valentine’s Day as well.
Sports Stocks to Buy: Liberty Braves (BATRA)
There are few pure-play sports teams to own here in North America but thanks to John Malone and the good folks at Liberty Media, you can own a piece of the Atlanta Braves through Liberty Braves (NASDAQ:BATRA), a stock that tracks Liberty Media’s 100% ownership of the Atlanta Braves, its new baseball stadium and a mixed-use development going up beside the stadium.
2017, the Braves first season in its new stadium, increased the baseball team’s revenues by 47% to $386 million on stronger sales of individual seats, corporate boxes, food and beverage sales, etc. The first 2-3 years in a new stadium provide a real honeymoon for company revenues and the Braves are no different.
However, it’s the mixed-use development built by Braves Development Co. called Battery Park Atlanta, that is the envy of sports teams everywhere. According to the development company’s CEO, Mike Plant, more than 100 sports teams have visited the project to see what’s possible from a customer experience perspective.
Approximately 70% of Battery Atlanta’s first phase is open, up from 30% when the stadium opened in 2017. It plans to announce phase two in the near future; together, the two phases provide the Braves with a very healthy additional revenue stream.
Sports Stocks to Buy: Foot Locker (FL)
If you bought Foot Locker, Inc. (NYSE:FL) stock a year ago and are still holding. My condolences. You’ve lost 50% of your investment (on paper) over the past 52 weeks.
Down almost 18% in the past three months alone, FL stock hasn’t had a positive annual return since 2016. Compared to the retail sector as a whole, Foot Locker’s had a miserable 16 months capped off by a fourth-quarter earnings report that included a 3.7% decline in same-store sales.
However, it sees margins and sales improving in the second half of the fiscal year, which should put a fire under FL stock.
I see a sports stock that’s down but not out.
It set a record for revenue in 2017 ($7.7 billion), has strong free cash flow of $539 million, and a pristine balance sheet with net cash of $724 million.
Over the course of a year, Foot Locker’s free cash flow yield has increased to 12.6%. Anything over 8% is considered value territory.
Of the seven sports stocks to buy, this is definitely the value play of the bunch.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.