No matter how you look at it, the novel coronavirus pandemic has been an absolute disaster for not only American society, but the rest of the world. Fortunately, it appears that new daily infections are on the decline. Personally, I don’t want to expound on that for fear of jinxing it. But if you want to profit off the assumption that this is it, you may want to check out sports and entertainment stocks.
As I just stated, the idea of gambling on epidemiological trends is risky. No one — not even experts in the field — knows for certain how this will play out. Yes, I can see data from the Centers for Disease Control and Prevention. They look very encouraging. At the same time, the declining infection rates also looked encouraging in the early fall of last year.
You know what happened next. Therefore, wagering on sports and entertainment stocks is probably one of the riskiest ventures available. If the pandemic worsens again — and that’s not out of the question with medical doctors suggesting that Covid-19 could become endemic — this sector could tumble once more.
From my own end, I’m not sure if I will join you regarding entertainment stocks. Admittedly, I’ve been skeptical about some of the names you’re about to hear. However, I wish to provide an objective view on the issue. Primarily, not everything about the Covid-19 response has been negative. For instance, our medical staff were much better trained for the last wave of cases due to a baptism of fire.
Just as importantly, the vaccine rollout has been crucial in addressing the prior surge in coronavirus cases. With more vaccine and treatment options available, we could very well be on the road to recovery. If so, you’ll want to consider these sports and entertainment stocks before that recovery is official:
- Nike (NYSE:NKE)
- Disney (NYSE:DIS)
- Comcast (NASDAQ:CMCSA)
- Madison Square Garden Entertainment (NYSE:MSGE)
- Vista Outdoor (NYSE:VSTO)
- Caesars Entertainment (NASDAQ:CZR)
- Liberty Media (NASDAQ:FWONK)
- AMC Entertainment (NYSE:AMC)
- Drive Shack (NYSE:DS)
Before we dive in, I want to stress again that I’ve been skeptical about some of these companies. The focus on this article is not about my prior opinions, but rather, the potential opportunity if you’re on the optimistic side of the fence. So, without any more delays, here are nine sports and entertainment stocks to buy if you believe in the recovery.
Entertainment Stocks: Nike (NKE)
When the coronavirus first devastated our economy, the discretionary retail sector absorbed the brunt of the damage. It’s no wonder: nobody needs the latest gizmos, gadgets and threads when the world was seemingly about to implode. However, amid out-of-favor sports and entertainment stocks, Nike demonstrated incredible resilience.
Since its March bottom of last year until Dec. 31, NKE stock gained a remarkable 125%. As people gradually accommodated to the new normal, the strongest brands in discretionary retail stood out. In addition, purchasing products provided a bit of retail therapy — considering that regular therapy probably took a hit during this time.
Now, I’m sure that NKE stock primarily benefitted from the desire of people wanting to get out and exercise. But I also can’t help but notice that Nike attire basically replaced the traditional suit and tie of the workplace. That’s something to keep in mind. NKE is one of the sports and entertainment stocks that can move higher even if Covid-19 cases worsen.
When Covid-19 took down high-contact businesses, this initially sent a chill down Disney’s back. At its lowest closing session, shares were down just under $86. That’s startling considering that since 2017, DIS stock was trading mostly in triple-digit territory.
True, the giant among entertainment stocks did have a critical pivot: Disney+, the company’s streaming channel and a viable competitor to Netflix (NASDAQ:NFLX). Still, the immediate reality was that the streaming unit was far too small to replace Disney’s theme parks and resorts business. Therefore, the pandemic was a lingering dark cloud over DIS stock.
To be fair, that hasn’t quite gone away. Nevertheless, the sharply declining Covid-19 infection rate is incredibly reassuring for stakeholders of DIS stock. It’s possible that Disney+ will maintain its newfound robust position in the streaming space. Soon, it can potentially restore its brick-and-mortar revenue channels to full capacity.
In an industry where compelling content is everything, Comcast losing out to Disney regarding its bidding war for 21st Century Fox was not a great look for CMCSA stock. Sure, it was a risk on Disney’s part to take on such a large acquisition. But look at where DIS is now.
Nevertheless, CMCSA stock hasn’t been a slouch either. Since the time Comcast missed out on the Fox acquisition, its equity valuation has increased significantly as well. Part of that has to do with the Covid-19 crisis. With greater demand for connectivity services due to the work-from-home pivot, the company significantly benefitted.
However, missing out on its high-contact revenue channels — where they lag Disney’s theme parks and resorts — was a tough pill for Comcast to swallow. However, the dramatic fall of Covid-19 cases, as well as the vaccine rollout, could finally turn things around.
Madison Square Garden Entertainment (MSGE)
It’s not everyday that you see analysts and investors take it relatively easy on a company that lost 94% of its revenue from the year-ago period. Yet that was the case with Madison Square Garden Entertainment. In the three months ended Dec. 31, 2020 — which is the company’s fiscal second quarter — revenue was down to $23.1 million, a fraction of what it generated in fiscal Q2 the year prior.
Now, MSGE stock did take some heat, with shares down nearly 5% on the day of the disclosure. Still, all things considered, this was a win for Madison Square Garden. In any other circumstance, the market would have hemorrhaged MSGE.
Of course, the company represents one of the few pure-play sports and entertainment stocks available. Further, because it’s located in New York City — a prior epicenter of Covid-19 — government officials adopted draconian mitigation standards. We can argue about the politics, but the bottom line is that “The Garden” didn’t have revenue-making opportunities; hence the pass on MSGE stock.
Nevertheless, with the promising developments in the war against the coronavirus, MSGE could be a winner among sports and entertainment stocks. This is definitely one to watch closely.
Vista Outdoor (VSTO)
Similar to Nike, I genuinely believe that Vista Outdoor is one of the best sports and entertainment stocks to buy. Thanks to its myriad businesses, VSTO stock can move higher regardless of whether the coronavirus pandemic worsens. Indeed, if you’re banking on this sector, you should consider Vista as a hedge because it could probably perform better if Covid-19 infections dramatically rise again.
Although Vista Outdoor has an innocuous name — by “outdoor,” you’re probably thinking camping or watersports activities — its ammunition business is anything but. And with the record spike in firearms sales resultant from fears of social breakdown, ammo sales will probably continue soaring. After all, guns aren’t particularly useful unless you have something to shoot.
However, the narrative for VSTO stock isn’t completely cynical. Because yes, if society somehow returns to normal, Vista is an excellent play on the pent-up demand for vacations and outdoor entertainment.
Caesars Entertainment (CZR)
I’m going to be upfront with you: Despite its strong ascent from last year’s March doldrums, Caesars Entertainment is risky. Mainly, you just don’t know how the Covid-19 crisis will play out. This will be the third time now that we’ve experienced a lull in cases following a sharp rise. Not surprisingly, Americans have turned very pessimistic about the pandemic, which doesn’t bode well for CZR stock.
Nevertheless, for the optimists, the narrative for Caesars and similar entertainment stocks isn’t completely dreadful. As rising air travel demand demonstrates, consumers are gradually coming to grips with the pandemic.
More importantly, CZR stock is a much more accessible vacation play. What I mean is that many people choose to drive to Las Vegas from California, which by the way is the largest state economy in the U.S., generating $2.6 trillion in commercial activity. Thus, if you’re going to pick a name from the entertainment sector, Caesars could be a profitable one.
Liberty Media (FWONK)
A few years ago, Liberty Media made a huge splash when it announced that it had acquired Formula One Group. For those that don’t know, Formula One is the world’s premiere motor racing series. While Nascar fans might object, the blunt truth is that nothing comes to the skills required to pilot an F1 car at ridiculous speeds at storied racetracks and street circuits across the globe.
Furthermore, FWONK stock made a strong recovery relative to other entertainment stocks following the March doldrums. On a year-to-date basis, Liberty Media shares are up 11% and for good reason. The organization proved that it can host entertaining races despite the Covid-19 disruption.
More importantly, for the upcoming 2021 season, we have many compelling storylines. World Champion Lewis Hamilton will compete for an unprecedented eighth world championship, having tied the great Michael Schumacher with seven titles — a previously unthinkable feat to match.
Plus, Michael’s son Mick will make his F1 debut this year. For those in the know, this is an exciting time to be an F1 fan, auguring well for FWONK stock.
AMC Entertainment (AMC)
Among entertainment stocks, AMC Entertainment is a doozy for me. Prior to the current health crisis, I felt that AMC stock was an intriguing contrarian opportunity. While streaming is king, it’s also done over the phone or in the living room. It just doesn’t match the big screen experience and the social interactions that come with it.
Unfortunately, social interactions were the last thing on people’s mind when the coronavirus struck. Not surprisingly, AMC stock took a serious beating. While there was some hope that came about from the Reddit bump up, that fleeting moment in time looks to have faded. Or has it?
I don’t want to speculate too deeply as the Covid-19 pandemic has been a cruel and sometimes capricious catalyst — acting favorably for some sectors and not too favorably for others. However, if progress in addressing SARS-CoV-2 turns out better than anticipated, AMC could fly again.
Drive Shack (DS)
If we were in a bull market, Drive Shack would be one of the better entertainment stocks to consider. It’s like Dave & Buster’s (NASDAQ:PLAY) but specifically geared toward corporate parties and getaways. Featuring food, drinks and a driving range, Drive Shack represents the perfect way to let off some steam. Then the coronavirus happened and sunk DS stock.
However, shares have been making a significant comeback due to declining Covid-19 cases and the encouraging vaccine rollout. With many jurisdictions loosening their coronavirus mitigation protocols, it appears that DS stock can finally make up for lost ground. And because there’s a lot of ground to make up, DS theoretically has a longer upside pathway than rival entertainment stocks.
Still, I urge caution. Drive Shack is only for those who have speculation running in their blood as there are many questions about how the workplace will look in the post-pandemic era.
On the date of publication, Josh Enomoto held a long position in AMC.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.