Growth stocks like DraftKings, Sands are worth considering, Citi says
Gambling stocks have been in the doldrums as share prices have plummeted this month, but some market watchers believe the weakness could create buying opportunities in certain growth stocks. The group includes DraftKings (NASDAQ: DKNG ) and Las Vegas Sands (NYSE: LVS ).
In a recent note to clients, Citi U.S. equity strategist Scott Chronert looked at the widely followed Russell 1000 Growth Index to find bargains in growth stocks, noting that The benchmark has retreated from recent highs. The gauge fell 3.15% last week, but some growth stocks suffered much steeper declines, which could mean opportunities for patient investors.
Our recent point about buying growth amid setbacks comes into play. We recommend including companies that are down at least 10% from their recent highs but have a solid fundamental outlook and reasonable expectations for implied medium-term free cash flow growth. ” Chronert pointed out.
DraftKings and Las Vegas Sands are two of Citi's picks on its list of 20 growth stocks to buy, and are the only gaming stocks on the list.
DraftKings and Sands may not necessarily drop swords
Buying declining stocks can be risky, and in financial market terms, buying declining stocks is often likened to catching a falling knife when the underlying stocks are shares of low-quality companies.
In fact, some of the recent losses among Russell 1000 Growth Index members may be difficult for investors to digest. While the benchmark index is down only 6% from its July high, two-thirds of its constituents have fallen 10% over the period, while another third have fallen 20% or more - which That's the definition of a bear market.
DraftKings and Sands meet these requirements. Las Vegas Sands, the world's largest casino operator by market value, hit a high of about $61 in July but is now trading at just above $45. Online sports betting giant DraftKing was trading around $32 at the end of July, but was trading at $27.60 late Monday.
Despite these declines, analysts remain bullish on both gaming stocks. Of the 31 analysts covering DraftKings, 21 rate it a Buy or Strong Buy, with the consensus price target implying an upside of nearly 28% from current levels. In the case of Sands, 13 out of 17 analysts rate the stock a Buy or higher, with the average price target more than 50% above current levels.
Falling bond yields may help
DraftKings, Las Vegas Sands and other growth stocks could benefit if bond yields fall. The reason is simple. Higher bond yields make future cash flows from growth companies less attractive.
The problem is that the 10-year Treasury yield rose 7.20% last month, suggesting some market participants don't believe the Fed is done raising rates. This may be one reason why many growth stocks underperform major benchmarks.
"We see much stronger downside momentum beneath the surface than the price action in the Russell 1000 Growth Index indicates," Chronert added.
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Source: www.casino.org
