Top 3 Sports Stocks: Potential Reopening PlaysMar 04, 2021
We’ve been getting a lot of questions recently about reopening plays.
As more and more vaccines are made available to the public, people are wondering how they can invest in this trend.
There are many ways to play this trend. However, we feel some of the most common reopening stocks have a reopening scenario priced into their share price.
- When something is “priced in” it means the market has already accounted for a theory coming true. For example, Live Nation stock which is a primary online ticket vendor for live event ticket sales, is currently trading at an all time high despite most concert venues and live sporting event venues being closed or operating at vastly limited capacity.
There are a number of reopening stocks that have a full reopen scenario priced in, like LiveNation, which we don’t view as attractive opportunities.
However, we think there are some sports stocks, which have lagged other reopening stocks that might be attractive long-term opportunities.
This is one sector to keep an eye on, but we should note that the thesis may take some time to play out. Moreover, with sports stocks, some of these companies could have different recovery rates depending on their location, as different states and countries are reopening based on different laws and political guidance. While these stocks could be bargains in the long-run, we want to make it very clear that there may be some near-term pain or sideways trading if reopening takes longer than expected.
Here are a few stocks that we like:
Madison Square Garden Sport (MSGS): MSGS is a unique opportunity and offers shareholders an ownership stake in the New York Knicks and New York Rangers. Forbes recently valued those teams at $6.2 billion, yet the market cap is only ~$4.8 billion at the time of this writing. Any news of other large market teams selling at premium price points could send this stock higher. In absence of that, investors may need to wait for a return to a world that has live audiences at events, which may take some time.
Manchester United (MANU): As indicated by the name, MANU stock offers shareholders ownership in the well known Manchester United soccer franchise, one of the world’s premier sporting brands. The team’s performance in recent years has been disappointing which has had a negative impact on ticket revenues even in the pre-pandemic world. However, Manchester United is an interesting opportunity as it’s ownership has very deep pockets, and soccer has no salary cap. This could pave the way for a quicker return to championship level soccer which would be a tremendous tailwind for the stock. Forbes recently valued Manchester United at $3.8 billion, which would make the current market capitalization of the outstanding stock (~$3.18 billion) look like a ~15% discount.
World Wrestling Entertainment (WWE): WWE shares have been hurt over the past year as a result of lack of audience at live events as well as weak TV ratings from the Raw and Smackdown segments. However, WWE is pivoting to move more towards streaming platforms for broadcasting it’s live events and just struck a massive deal with NBC Peacock. WWE is moving to hosting its events on its own streaming platform (WWE Network), and will likely take the saved costs from broadcasting its own events to reinvest in the product. So, while some broadcasting and TV challenges could subside, WWE will also eventually see revenues return from its live events portion of the business, which will be a large positive for the stock.
Again, there are many ways to play a return to normal, and a reopened economy. However, reopening is priced into some of the most popular reopening plays. We think some of the above listed names could be attractive ways to invest in reopening. However, we also note that this thesis could take time to play out. If you’re planning to invest in any of these teams that stand to benefit from reopening, we’d caution you that these names may trade sideways or lower in the short term. However, over the long term (>1 year), we see some areas of opportunity where valuations may be cheap and offer a good long term opportunity.