DKNG Shows Sports Betting is Back, But This Time With Wall Street Flair

Baseball is back, with a deal for a 60-game season just announced. Professional golf is back. Nascar has been back for several weeks. Professional tennis, though off to a rocky start, is back. And, sports betting is back.

Which means companies like DraftKings (DKNG), which runs an online sports betting platform, is back in business.

Online gaming companies were left for dead when the COVID-19 pandemic hit. As sports league after sports league announced season-ending closures, there was no betting to be done.

But as sports shut down, and sports commentators and writers were left in limbo, an interesting thing happened. Some, including the more social media-famous Dave Portnoy, took to “betting” on stocks.

Portnoy, who is the founder of Barstool Sports, has used the stock market as a marketing tool, drawing millions of followers to his social media accounts with his battle cry of “Stocks only go up.” The entertaining, self-described sports bettor, can lose hundreds of thousands of dollars in a single trading session, all to the amusement of his social media followers.

What Portnoy—who once was closely associated with DraftKings, and now works as a “complete sell out” (his words) for Penn National Gaming (PENN) since its acquisition of Barstool Sports in January—has done is build an even bigger audience for sports betting when it returns.

The pent-up demand for sports betting, combined with some expert marketing from sports betting stalwarts like Mr. Portnoy, could lead to outsized gains for the sports betting stocks.

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DraftKings, which went public recently as a special purpose acquisition company (SPAC) has been moving higher in recent months in anticipation of sports returning. But the company isn’t just resting on its sports-betting laurels.

On Tuesday, the company announced a new casino gaming app for customers in New Jersey. Jason March, DraftKings’ VP of Gaming said, “We are thrilled to break new ground for DraftKings in the gaming space today with the launch of our DraftKings Casino app, the Company’s first perennial product that operates year-round, irrespective of the annual sports schedules.”

This should add another leg to the DraftKings betting stool and smooth annual revenue numbers somewhat. In the company’s first earnings report last month, DraftKings reported $113.4 million in revenue, and a loss of $74 million.

The company has been spending heavily on marketing, as it enters new markets that approve online gaming, which added significantly to recent costs. If online gaming expands to additional states, seeking revenue to refill the DraftKings coffers after the COVID-19 pandemic, DraftKings could be a big long-term winner, even if they take on additional costs in the short-term.

Penn National Gaming, which owns in-person gaming facilities in 19 jurisdictions, and operates 41 gambling facilities, has also made a big comeback from the lows the market set on March 23rd. As the U.S. reopens, Penn stock has moved from $3.75, back to the mid-$30s.

Another rise in COVID-19 cases may cause the stock to pull back, setting up a better buying opportunity. To ensure its financial stability, the company recently did a $300 million share offering, as well as a $300 million debt offering.

With its 36% equity position in Barstool Sports, Penn is betting on that relationship as it launches an online betting platform, scheduled for August. The company, per its investor presentation, is looking to go after the market now dominated by DraftKings, relying on its 66 million Barstool fans.

Finally, Scientific Games (SGMS), perhaps best known for its lottery ticket machines, also offers a number of casino and digital betting games, and owns SG Digital, the sports betting division of Scientific Games.

The company should benefit from the country reopening, and a return to gaming and gambling, across the board—from being able to return to the supermarket or convenience store and buy lottery tickets, to sports betting, and even stay at home casino gaming for those still sheltering at home.

SGMS is nowhere near the highs it reached prior to the COVID-19 pandemic, trading at only half its pre-pandemic price of $30. First quarter revenue for SGMS was $725 million, down 13% from $837 million a year ago. The company blamed the impact of the pandemic for the decline.

BA, LUV, AAL, and SAVE Cutting Back to Regain Profits As Economy Reopens

Boeing (BA) recently announced it would be putting its 737 Max production line back in business. The line has been closed since January of this year, and BA has not delivered a 737 Max since March 2019.

While the plane has still not been approved for service by the FAA, BA anticipates a favorable ruling, and therefore restarted the line two weeks ago. Boeing stock rallied on the news, and while it has pulled back slightly, it’s still higher than it had been before the announcement.

Like many other stocks right now, BA is trading on the reopening of the economy, and anticipation that the worst is behind us.

The past few weeks have seen the beginning of a shift, though you might not be able to tell it with the Nasdaq at all-time highs, from stay-at-home tech stocks to industrial companies. Stocks like Caterpillar (CAT), which has jumped from $100 to over $130, are moving off of recent lows set in mid-May.

As economies continue to reopen, large companies that were severely affected by the pandemic only a few months ago are figuring out the “new normal,” and investors are pouring into their shares to get ahead of business returning.

It may be a bit of a bumpy ride, but it looks like the tide is turning for large companies that were heavily altered by the current health crisis.

Boeing CEO David Calhoun predicted a few weeks ago that a “major” U.S. airline might go bankrupt due to COVID-19. Oh what a difference a few weeks makes. Boeing has tried to downplay that statement, saying Calhoun may have overstated the case.

Given that orders have dropped precipitously for the 737 Max, Boeing has been working feverishly to cut costs. As orders return, these cost-cutting efforts should make for some very favorable comps in coming quarters for the company.

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Southwest Airlines (LUV) CEO, Gary Kelly, has already said that Southwest is committed to the 737 Max, and “The Max airplane is superior to the Next Generation 737 that we’re currently operating.”  Assuming the Max clears regulatory hurdles, LUV is scheduled to take 48 of the planes by the end of 2021.

Spirit Airlines (SAVE) is another company that has bounced off a bottom in mid-May, when SAVE traded below $10. While it has pulled back, like Boeing and the other airlines, this may be the pause that refreshes.

Again, numbers won’t show an easy upward line for any of these companies, but Spirit is coming off of passenger levels that had declined 95% from year-ago levels. SAVE lost $74 million in the first quarter, after putting in a positive earnings report of exactly the same amount, $74 million, in the year-ago quarter.

In a recent conference call, Spirit CEO Ted Chirstie, said the company had been investing in low-touch technology to improve its customer experience, even before the outbreak of the novel coronavirus. As Christie said, “Sometimes it’s better to be lucky than smart.”

And finally, American Airlines (AAL), like many of the others, has begun its slow climb upward. The company, which traded at $34 a year ago, crumbled to almost $8, before its recent bounce to just above $17.

AAL is also looking at cutting costs and has rolled out a severance package for high-level executives. American expects to cut around 5,000 jobs when funds from the CARES Act are exhausted in the fall.

A much leaner structure should, again, make for a more rapid recovery as paying passengers begin to return. This isn’t an uncommon occurrence following a systemic shock to an industry. Companies downsize and streamline as a result of the crisis, and then often see outsized profits during the recovery period.

Why Medical Device Stocks Are a Great Investment And The One You Should Buy Now

ne of the more interesting figures of the American Revolution is Thaddeus Kosciuszko, a Polish army officer who was so moved by the patriot’s cause that he came to the colonies specifically to join the fight. Kosciuszko was named head engineer of the Continental Army, and his help was critical at the Battles of Ticonderoga and Saratoga.

The good citizens of Indiana and Mississippi both named counties in his honor. The Hoosiers went one better and named the county seat Warsaw as a salute to Kosciuszko’s heritage.

It might seem strange that a city in the heartland has the same name as the capital of Poland. But Warsaw, Indiana isn’t like most towns. In 1895, the city was altered forever when a salesman named Revra DePuy decided that he no longer wanted to work for other people. So he did what any American would do: He became an entrepreneur.

At the time, bone fractures were set with wooden splints. DePuy, a splint salesman, had a revolutionary idea: he started using metal—which could be bent to fit any person—instead of wood. That’s how, in a garage in Warsaw, Indiana, Revra DePuy launched the town’s orthopedics industry.

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DePuy’s business did very well, and within a few years he hired Justin Zimmer to be his first sales manager. After DePuy died, Zimmer wanted to buy the company but wasn’t able to. So, like DePuy before him, he also started his own orthopedic business right in Warsaw. The orthopedics industry grew and grew and grew. Soon, the advent of plastics launched the industry into a new age of design and innovation.

In 1977, entrepreneurs Dane Miller, Niles Noblitt, Jerry Ferguson and Ray Harroff—two of whom had worked for Zimmer—branched out on their own. They formed another orthopedic company, which they called Bioemt, right in Warsaw.  In their first year, the company recorded sales of $17,000 and a loss of $63,000. Despite this modest start, Biomet soon delivered several years of record sales.

If any business could be described as the perfect business, it might be medical devices. The business has demographics on its side, and the industry is constantly driven by technology and prices increases. The stocks tend to be very stable, and highly profitable.

Several medical device stocks like Medtronic (MDT)Abbott Labs (ABT)Stryker (SYK) and Boston Scientific (BSC) have been market-beaters for years. According to data available at Professor Kenneth French’s Web site, medical device stocks have increased by more than 4,200,000% over the last 80 years. That’s far better than the overall market.

Here’s a look at the Dow Jones Medical Equipment Index since 2000:

Today Warsaw is the backbone (sorry) of the global market for replacement joints. Today, knee and hip replacements are quite common, and about 40% of the worldwide orthopedics business still flows in and out of Warsaw, where DePuy Inc. is still based. A few years ago, it was bought out by Johnson & Johnson (JNJ).

Both Zimmer and Biomet also remained in Warsaw. Then in 2014, the two companies merged creating, what else, Zimmer Biomet (ZBH).

Zimmer Biomet makes and sells “orthopedic reconstructive products; sports medicine, biologics, extremities and trauma products; office-based technologies; spine, craniomaxillofacial and thoracic products; dental implants; and related surgical products.”

Today, Zimmer Biomet employs nearly 20,000 people. Last year, it rang up nearly $8 billion in sales. Since it went public two decades years ago, ZBH has gained more than 400%.

Despite its past success, the stock hasn’t done much recently. That’s why I wanted to highlight the stock this week. Of course, the nasty bear market didn’t help the shares. Zimmer Biomet fell from a high of $161 in February to a low of $74 in March. Even going back four years, Zimmer Biomet has underperformed the broader market.

There have been concerns that the industry is under pricing pressure. I understand the worry. Price increases are the heart and soul of orthopedics, and Zimmer Biomet is no exception. The company enjoys gross margins of 70% and net margins of 20%.

The company’s last earnings report, for the quarter ending on March 31, was quite good. Zimmer Biomet earned $1.70 per share, which beat estimates by 32 cents per share. The current quarter, however, will be worse. More than 80% of the company’s business comes from elective procedures. Before the coronavirus hit, Wall Street had been expecting Q2 earnings of $2.01 per share. That estimate is now down to a loss of 77 cents per share.

Like many other companies, Zimmer Biomet has withdrawn its financial guidance. The earnings for 2020 won’t be much, but I think it’s very reasonable to expect that theirs will bounce back next year and in 2022.

This is a good time to take advantage of the lower price. As the economy gets back on its feet, Zimmer Biomet will be a big winner.