One of the trends the novel coronavirus has brought our lives is following what Robinhood investors buy. Whenever a news headline mentions a certain stock has become popular among retail investors using the online broker, there is typically renewed interest in that company. Therefore today, we will introduce three sports stocks Robinhood investors are buying,
The value of the sports industry in the U.S. is fast approaching $100 billion. And the global industry is around $500 billion. About half of that number comes from professional sports. According to recent research by Deloitte conducted before the start of the novel coronavirus pandemic, five themes were gaining importance within the industry, including:
- The importance of women’s sports is significant.
- The e-sports economy is both evolving and growing.
- In the U.S., legalized sports betting will mean growth of online betting.
- College athletes aim to maximize their short-term value.
- Technological developments, such as 5G and the cloud, will affect the sports industry.
The “stay-at-home, work-from-home” trends dominating our lives over the past six months have changed some of the priorities in the sector. For example, many individuals now exercise at home, as opposed to working out at their local gyms. While health effects of the pandemic dominate news headlines, a great number of citizens worldwide are more health conscious, tracking various bodily metrics, possibly through the use of apps or smart devices.
Other sub-sectors that have grown in 2020 are e-sports as well as betting on fantasy sports and online gaming. For example, online gaming is expected to swell past $2 billion in the coming years. Similarly, according to the Fantasy Sports and Gaming Association, the number of fantasy sports players and bettors are on the rise. In the early part of the decade, the U.S. fantasy sports market is expected to grow at a compound annual growth rate (CAGR) of 10%. The U.S. sports betting market is expected to hit $5.7 billion by 2024.
With Robinhood activity as a guide, here are three sports stocks to buy:
- Nike (NYSE:NKE)
- Amplify Online Retail ETF (NASDAQ:IBUY)
- Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ)
Sports stocks to buy: Nike (NKE)
As one of the world’s largest seller of athletic apparel and footwear, Nike needs little introduction. The Beaverton, Oregon-based company reaches global consumers through Nike-owned retail stores; NIKE Direct, which focuses on online sales; plus various independent distributors and licensees as well as their digital platforms.
In late June, the company released Q4 results that raised eyebrows since it reported an unexpected quarterly net loss and a sales decline of 38% year-over-year. Revenue of $6.31 billion meant a loss per share of 51 cents. On a regional basis, revenue in North America was down 46%, while sales in China were down just 3%.
However, analysts noted that digital sales went up by 75%, equating to around 30% of total revenue. In other words, Nike’s online sales benefitted from the increased levels of e-commerce we witnessed in 2020. Sneakers and workout gear sold especially well online. Nonetheless, online revenue simply did not make up for the business that was lost due to store closures.
Next earnings are due on Sept. 22. Year-to-date, Nike stock is up about 15%. As a result, its valuation metrics are on the pricey side. For example, its forward price-earnings ratio is 51.48 and P/B is 4.95. Technical indicators and short-term charts also point out an overbought stock where investors may be ready to take some money off the table.
Potential investors may want to study the quarterly results, before committing new capital into NKE shares. A potential decline toward the $100 level would improve the margin of safety for long-term investors in the shares of one of the strongest global retail brands.
Amplify Online Retail ETF (IBUY)
Our next choice is an exchange-traded fund, or ETF, whose largest holding is the interactive fitness platform Peloton (NASDAQ:PTON), one of the most popular stock among Robinhood investors. Many analysts agree the company’s efforts to combine products (i.e., hardware, software and content) onto a subscription model could be a winner. The Street loves companies that have recurring revenue, which typically translates into regular revenue as well as cash flow. PTON shares recently hit an all-time high of $98.61.
The fund, which was launched in April 2016, has close to $900 million under management. In terms of country allocation, the U.S. tops the list with over 74%. Next in line are China (8.14%) and Germany (3.75%).
IBUY has 49 companies, covering traditional retail (59%), marketplace (31%), and travel (10%) sub-sectors. Other stocks that that Robinhood investors hold include PayPal (NASDAQ:PYPL), Uber (NYSE:UBER), Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA).
So far in the year, the fund is up more than 65%. In fact, it hit an all-time high on Sept. 2, benefitting from the stay-at-home economy. As a result, short-term profit-taking is likely, pushing the ETF toward the $80-level, or even below.
Put another way, buying into IBUY could enable market participants to get exposure to a wide range of firms that may be traded heavily by retail investors, without putting all eggs in one basket. If you believe online retail is possibly going to benefit more from the new normal of life under the shadow of the pandemic, then you may want to keep the fund on your radar screen.
Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ)
Our final discussion also centers around a recently launched ETF, the Roundhill Sports Betting & iGaming ETF.
Like IBUY, BETZ also provides a relatively large exposure to another popular stock, sports-betting industry darling DraftKings (NASDAQ:DKNG).
Boston-based DraftKings was set up in 2012 as a daily fantasy sports platform. In the U.S., DraftKings and FanDuel, which is part of the UK-based Flutter Entertainment (OTC:PDYPY), are the two main platforms for sports and sports fantasy betting. DraftKings went public in late April via a special-purpose acquisition company (SPAC), instead of a conventional IPO. The stock officially started trading on April 24 and on Sept. 18, it hit an all-time high of $54.56.
Management has been retuning the business and the business model to increase revenue streams. It has now moved into the more traditional side of the betting industry. For example, in late July, the company became the first “official betting operator” of the PGA TOUR.
Those investors buying into BETZ would also invest in several other companies that Robinhood investors cannot seem to get enough of. They include MGM Resorts (NYSE:MGM) and Penn National Gaming (NASDAQ:PENN).
On Sept. 16, the fund hit an all-time high of $21.31. The current volatility in broader markets may put pressure on BETZ, which would give long-term investors a better entry into the ETF. Since investors would be betting on the future of an emerging industry, the short-term moves may be erratic.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
