The novel coronavirus pandemic is slowly receding to the backdrop leading to fresh interest in sports stocks. Now that vaccines are rolling out, the sports community is shifting its focus onto the stock market.
The NBA, MLB and NFL have conducted successful seasons despite the unprecedented circumstances. As we move further along the year, we can expect more sporting competitions to either stage full-scale comebacks or open up partially.
Nevertheless, you will want to exercise caution when investing in sports stocks at the moment. Stadiums remain largely empty, and souvenir, apparel, and snack sales have not recovered.
Companies with sound business models, cash balances, and strong balance sheets will continue to do well, regardless of the circumstances. In fact, sports stocks are value plays compared to tech stocks and the growing EV sector. Once things start getting back to normal, we will see these shares rise to their previous highs and soar further due to pent up demand.
Here are five such sports stocks that you should be aware of:
- Nike (NYSE:NKE)
- Madison Square Garden Entertainment Corp. (NYSE:MSGE)
- World Wrestling Entertainment (NYSE:WWE)
- DraftKings (NASDAQ:DKNG)
- Vici Properties (NYSE:VICI)
Sports Stocks To Watch: Nike (NKE)
We start our list with one of the most iconic brands of all time. Sporting excellence, pop culture, and attitude have all become synonymous with Nike.
In 2020, the Nike brand was estimated at nearly $34.8 billion. With such a strong brand, investors are advised to add NKE stock whenever it loses a bit of steam. In the March 2020 market sell-off, shares went as low as $60 a pop. However, they have recovered nicely, rising 11% in the last three months alone.
Many will be wondering whether the time is ripe to exit their positions, considering the strong growth. However, there is still more room to grow. Out of 20 analysts covering the stock, 19 have a bullish perspective on the stock.
It’s unsurprising why NKE stock is rated so highly. It’s one of the most consistent apparel brands out there. In the past 12 quarters, it has beaten analyst estimates a whopping 10 times. Its fiscal second-quarter earnings and sales exceeded analysts’ expectations, backed by triple-digit growth online in North America and strong demand from Chinese consumers.
Permanent shifts toward digital, athletic wear, and health and wellness, continue to offer us an incredible opportunity.” Chief Executive John Donahoe said during an earnings conference call.
It looks like the management is in an excellent position to capitalize moving forward. From a dividend perspective as well, the company is a rock-solid investment. Although a dividend yield of 0.8% might seem shabby, you also have to factor in that NKE stock grew by leaps and bounds last year. On its part, the company has increased payouts consecutively for the last 10 years.
Considering the excellent dividend performance, NKE stock serves a dual purpose. It’s an excellent growth stock and is also a great defensive option.
In the run-up to dividend announcements and earnings releases, I would load up on NKE stock.
Madison Square Garden Entertainment Corp. (MSGE)
MSG Entertainment controls live events at Madison Square Garden. Billed as the “world’s most famous arena,” this multi-purpose indoor stadium hosts pro sports, concerts and other big events.
Words do not suffice how valuable this venue is. However, what good is an iconic building when it cannot host any events? While fan attendance would be a great way to bring back a sense of normalcy, one has to temper that excitement. New York City zip codes were the hotspots for the virus when things started to go south last year. The authorities don’t want to face a lot of criticism by opening things up early.
But MSGE stock has the wherewithal to remain afloat during this time. As of the third quarter of 2020, the company had cash of $925.8 million, enough change for it to survive for a few more quarters as things start getting back to normal. Additionally, the company sold The Forum in Los Angeles to Steve Ballmer in March 2020 and recently completed a $650 million debt financing in the form of a five-year senior secured term loan, significantly strengthening its liquidity position.
Management is conscious of the need to take all the necessary steps during these times of crisis. Markets understand this. MSGE stock is up 44% in the last three months. However, there is still further upside because there is a lot of pent-up demand for sports that will be unleashed soon enough.
World Wrestling Entertainment (WWE)
A major member of the world of sports entertainment, WWE doesn’t usually appear on lists as a must-buy sports stock. It’s a huge folly, in my opinion. WWE stock has outperformed the S&P 500 by 130% and its sector by 185% in the last five years. Despite these excellent returns, the company has flown largely under the radar.
In the past six quarters, the entertainment company posted six consecutive earnings beats. The pandemic and related government mandates have negatively impacted WWE’s business as it has been directed to cancel, postpone or relocate its live events beginning in mid-March 2020. However, the interesting bit is that WWE has adapted to the situation quite well. Most recently, WWE reported EPS of 56 cents per share, a 60% beat on analysts’ estimate of 35 cents per share. Revenue was $221.6 million, an uptick of 19% or $35.3 million.
These stellar numbers are because of the WWE’s unique business model. It derives the bulk of its revenue from media, including subscriptions to the WWE Network and its content licensing. NBCUniversal’s Peacock streaming service recently signed a new multiyear deal to stream WWE content exclusively for reportedly $1 billion. The deal is exclusive to the U.S.; the WWE will continue to derive revenue from the other territories.
In fiscal 2021, analysts expect a 12.3% rise in revenue, translating to 39.7x forward price-earnings. Considering that the company doesn’t rely on live events, I believe it’s uniquely suited to thrive in the current situation.
DraftKings (DKNG)
With sports-betting legalization increasing across the U.S., DKNG stock is attracting a lot of attention. DraftKings is a digital sports entertainment and gaming company, providing users with daily fantasy sports, sports betting, and iGaming opportunities.
With the pandemic forcing major casinos and resorts to shut down, the sports betting company will continue to gain ground as more people move online to gamble.
That’s why it’s no surprise DKNG stock is enjoying a robust bull run since going public through a reverse merger with blank-check company Diamond Eagle Acquisition last year. In just the last three months alone, shares have increased by 53%.
Having said that, it’s not all red roses and sunflowers for the sports betting company. In the past three quarters, the company has disappointed analyst estimates each time. However, since it is at a nascent stage, investors will have to be patient. Despite the negative EPS numbers, in Q3, DraftKings reported $133 million, an increase of 98% compared to $67 million during the same period in 2019.
When I last wrote about DraftKings, I said that the legalization of sports betting is a secular tailwind. I maintain that. However, what is important to note here is that DKNG stands to gain the most ground due to its asset-light business model.
Vici Properties (VICI)
Vici Properties is an owner, acquirer, and developer of real estate assets across gaming, hospitality, entertainment, and leisure destinations. It functions as a real estate investment trust. REITs must have the bulk of its assets and income connected to real estate investment and must give at least 90% of its taxable income to shareholders yearly in the form of dividends. In return, it enjoys tax-exempt status.
That makes VICI stock income play. However, that doesn’t mean you won’t enjoy capital appreciation with this one. VICI stock has outperformed its sector by 49.5% in the past five years. A large reason for this is the strong fundamentals that the company possesses. In the past six quarters, the company has posted five positive earnings beats. Sales revenue has grown by 41.6% in the past three years, while EPS has increased by 53.3% during the same period.
Despite these numbers, VICI stock is trading at 12x price-sales, quite reasonable considering the return/risk profile of the investment. You have to remember that you also get a yield of 5% when you buy into this business.
And since the company functions as a REIT, you can rest easy knowing that the dividend will never stop. Plus, as we move further along in the year, its golf course segments will continue gaining steam. Its golf courses include the Cascata golf course, the Rio Secco golf course, the Grand Bear golf course, and the Chariot Run golf course.
For all these reasons and more, out of 20 analysts, 19 have a bullish sentiment on shares. VICI stock has a 12-month price target of $29 per share, implying a 10% upside and making this one of the best sports stocks to buy.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
