The market as a whole continues to be tricky and challenging, but growth-oriented areas (including key indexes and individual stocks) continue to improve their standing, notes Mike Cintolo, editor of Cabot Top Ten Trader.
It’s still best to pick your spots and stocks carefully, but we’re OK gradually putting money back to work. Here's a look at two stocks involved in gaming and sports betting.
International Game Technology (IGT) is both a reopening play and also a sports betting play. The company recently announced its systems will be the technology behind sports betting at the largest casino in Louisiana, another step for the firm to establish itself in the quickly expanding North American sports betting field.
The new deal, at the Coushatta Casino, marks International Game's 41st sports betting customer in 17 states. Gambling on sports is increasing as states (eager for new revenue sources in light of the pandemic) have supercharged its expansion across the country, while Ontario’s recent legalization is expected to lead to acceptance across Canada.
And there's still huge growth to be had: One-third of the U.S. population has no access to sports gambling, most notably in California, where there are rumblings of legalization.
As for the here and now, the bulk of business is with lotteries, which provide 80% of the company’s $1 billion EBITDA in 2020; this segment includes the software to run state and national lotteries, as well as producing scratch-off cards, running second-chance drawings and licensing content.
Business can be variable — the occasional mega jackpot is a wild card that generates more revenue, for instance — so Wall Street’s expectations for Q2 earnings, to be announced in early August, range from a low of 7 cents to a high of 42 cents a share.
Still, the major trend here is up, and the sports betting angle gives the firm plenty up upside—analysts seeing International Game Technology returning to a yearly profit of 81 cents per share this year with a big 68% boost in 2022.
IGT chugged to a three-year high of 26 in early June, a good advance after the stock's solid breakout above 20 one month before. Shares have since eased back on mostly tame trade (the one big-volume day was options expiration) as the 50-day line (now near $22.5) catches up. This looks like a classic early-stage pullback after a solid breakout, offering up a solid risk-reward situation.
Scientific Games (SGMS) is a long-time technology provider for lotteries and casinos. Lately it has jumped into sports betting, which is rapidly opening up as U.S. states look to raise tax revenue from legalizing an activity that has been large (perhaps $150 billion annually) but mostly outside the law.
The move toward legalization has been so swift that companies are scrambling to ink deals and secure market share. For its part, Scientific Games bought a closely held betting tech outfit, SportsCast, at the end of May. Its technology allows for instant pricing of up to 12,000 different bets a second.
That’s important because serious bettors want to be able to place multiple bets quickly and because sportsbooks see their future as being able to offer many small in-game bets (i.e. will the next pitch be a strike?) as opposed to just betting once ahead of an event.
Scientific Games is working quickly on capitalizing on SportsCast, following up with a Wynn Resorts deal to be its tech provider for sports betting in three states. Right now, sports wagering is legal in some manner in 28 states, but that figure is growing with more jurisdictions, as well as Ontario, moving toward legalizing sports bets in some form.
Scientific Games already was performing well as a reopening play: Q1 results saw revenues grow from a year-ago for the first time in a while, and the loss of 16 cents was 32 cents better than expectations and miles better than last year.
The reopening benefit is probably baked into the stock already, but the potential of sports betting should provide the tailwinds for growth. This year, the company should be able to turn a net profit of 49 cents a share, with a huge earnings surge coming in 2022.
SGMS shares have had a huge post-crash move during the past year, but it’s the action of the past few months that we’re keying off of. After a big shakeout in March, the stock went bananas, rising 10 of 11 weeks on solid volume, pushing to all-time highs in the process. Moreover, the dip last week while reopening/cyclical stocks were falling apart was tame. We still think further dips are possible, but a retreat to or a bit below the 25-day line would be tempting.