Friday was a breakeven day on the markets, with U.S. retail sales for July coming in below Wall Street's expectations and shaving points off the Dow early in the day, while it pared those losses in midday trading and other drivers, including stimulus deadlock and the China trade deal, are keeping the major indexes in a state of limbo.
While retail sales for July recorded their third consecutive monthly rise, coming in at 1.2% higher, this was below the ~2% rise analysts were expecting. The only sales that beat expectations were cars and gasoline. But July is generally a low-volume time when it comes to retail, so the market isn’t reading too much into this.
The bigger drivers will be the stimulus deadlock, which is now on pause until the Senate returns after Labor Day.
Against this backdrop, it’s also earnings season, and these are our top three stocks to watch right now:
#1 DraftKings (NASDAQ:DKNG)
This is one of the hottest gambling stocks of the year. DraftKings is one of those pandemic darlings: It’s a daily fantasy sports contest and sports betting provider, which makes it a potential winner when it comes to social distancing.
DraftKings beat revenue estimates but missed earnings estimates, so is it a buy right now, or not?
The company grew revenues 23.6% year-over-year, but reported a loss of 55 cents a share.
Buying on the dip might be a good play here because the stock shed 6% on its missed earnings, but full-year revenue guidance was better than expected.
Two notes of caution buying on the dip:
First, the pandemic is messing with the scores of professional and college sports leagues, so DraftKings will have to adjust. This isn’t an all-out pandemic-proof stock--yet. But as long as it’s digital, there are tons of avenues of growth here, particularly with the rapid rise of esports and sports betting in general, which doesn’t necessarily have to have traditional sports to survive in the future.
Second, there’s a bit of a wet rag here in the form of the IRS. The IRS has ruled that daily fantasy sports companies must pay federal excise tax on their entry fees (every wager), which has rather wide implications for this industry and its bottom line.
#2 Tencent
Hong Kong-listed Tencent--the Chinese tech giant--had a bit of a scare last week when Trump announced a ban on TikTok and WeChat in the United States. Tencent, the owner of WeChat, saw its shares dive on the news and its stock lose $66 billion overnight, but they rebounded when investors realized that this isn’t a deal-breaker for giant Tencent as WeChat represents only about 10% of its portfolio.
And it was all but forgotten when Tencent released its earnings Wednesday, completing crushing expectations.
Tencent’s biggest revenue-earner is online gaming, and that grew 40% year-on-year to 38.29 billion yuan. Overall revenue was up 29% year-on-year, and profit was up 37% year-on-year.
These numbers indicate that Tencent may not take much of a hit with a WeChat ban in the U.S. This stock rallied 60% in the past 12 months, and all the evidence suggests that there’s still plenty of room to run.
#3 MGM (NYSE:MGM)
MGM is a casino monolith, and the pandemic has hit it hard. But while this stock hit a low of $5.60 in Q1 2020, June saw it work its way back to $23 before paring some of those gains to around the $15 range. Now, it’s trading back up over $21.
The catalyst was a $1-billion investment injection on Monday by billionaire Barry Diller’s InterActive Corp. (IAC). That gave IAC a 12% stake in MGM, and shares soared 14% on the news.
It was a lifeline for a gambling company that had reported a 91% revenue drop in its latest quarter and whose shares had lost more than 35% in 2020.
By Tom Kool for Safehaven.com
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