Financial Slump Spurs Golden Opportunity for Growth Stocks: A Case for DraftKings and Las Vegas Sands

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This month, the financial markets have fallen into a slump, with the gaming industry taking its share of the hit. Nevertheless, some experts in the market suggest that this downturn could present a golden opportunity to buy into select growth stocks. Top of the list are DraftKings, listed on NASDAQ as DKNG, and Las Vegas Sands, found on NYSE as LVS.

A report to clients by Scott Chronert, an esteemed equity strategist at Citi US, puts forward an interesting observation regarding the Russell 1000 Growth Index. Although the index has seen a 3.15% decrease over the past week, selected growth stocks have taken a harder hit, presenting possible investment opportunities for those willing to play the long game.

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Chronert’s recent recommendations have come to fruition – buy when growth stocks take a tumble. Specific companies that show a 10 percent or greater decline from recent highs, but a stable outlook and credible mid-term free cash flow growth predictions are worth adding to the portfolio.

DraftKings and Las Vegas Sands were among 20 stocks highlighted on Citi’s buy list of declining growth stocks, and notably, the only gaming stocks included. Nevertheless, both companies represent risky investments, as buying into failing stocks is often regarded as a hazardous financial strategy, similar to catching falling knives.

It’s expected that recent losses from the Russell 1000 Growth Index will be difficult for investors to stomach. The index is currently 6% off its high in July, with two-thirds of its components down 10% over that period. A third of the components have fallen 20% or more, entering what is defined as a bear market.

This includes both DraftKings and Sands. Las Vegas Sands, the largest worldwide casino operator by market capitalization, had a high of around $61 in July but is now hovering just above $45. Similarly, online betting giant DraftKings traded at about $32 in late July but was valued at $27.60 by late Monday.

Despite these slips, financial analysts maintain a positive outlook on these gaming stocks. Of the 31 analysts who cover DraftKings, 21 rate it as a “buy” or “strong buy,” implying a potential 28% increase from its current price. Las Vegas Sands has a similarly bright forecast, with 13 of 17 analysts rating it as “buy” or better, anticipating an increase of over 50% from its present value.

A decrease in bond yields could further benefit DraftKings, Las Vegas Sands, and other growth stocks. Higher bond yields can often make the future cash flows of growing companies less attractive. However, the fact that 10-year Treasury yields have increased by 7.20% over the past month indicates a lack of confidence among market participants that the Federal Reserve will cease increasing interest rates. This explains the current underperformance of many growth stocks against leading benchmarks.

Detouring from the broader financial terrain to enter the vibrant world of online gaming, here at West Island Blog, we provide insights on the top online casinos this month, just in time for Canadian players seeking their next virtual venture. Chronert rightly concluded, “We see much more of a drawdown dynamic under the surface than the Russell 1000 Growth Index price action would suggest” – a situation that is not far removed from the fluctuations seen in the digital playground of online casinos.