March Madness, Draft Kings (DKNG) and Penn National Gaming (PENN)

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March Madness, Draft Kings (DKNG) and Penn National Gaming (PENN)

03/12/2021

Podcast Transcript


Hey, this is Jeffrey with another edition of Stock Smart, March 12th, 2021 edition. Hope you’re doing well. Wanted to give some insight here on something that I saw. I was out to dinner with my business partner on Wednesday, and I was talking to it’s like a silver lining of Covid, I was talking to a manager at a restaurant that I like to go to, and we were eating and he came over and I said, how are you doing? The restaurant was sort of, it wasn’t full because I think it’s still restricted but they had a good amount of people in there and asked them how they’re doing and he said we’re doing really well and he goes you wouldn’t believe how much take out we’re doing.

[00:00:35]
And so what I think is the silver lining in this whole Covid thing for a lot of these restaurant is they have become proficient, when they probably never thought of it this way. I’ve bet in the past these restaurants were mostly known for dine in places. They’ve become very proficient at take-out now and you wonder if they’ll keep that up but this is like the silver lining and I asked him, I said, you know, it was interesting because maybe now more people will choose you as take out food because there’s a lot of places, what do people order for take out? the same thing, we order Chinese food, pizza, a couple other things, but most things are not great take out.

[00:01:12]
Like during Covid, I didn’t eat a filet ever from take-out because it’s not good when you take out, there’s certain things that are not going to translate well to take out but as these restaurants have gotten more proficient at handling takeout orders you’d be surprised I think that this is going to be now another aspect of their business that maybe helps them when the reopening as restaurants start to get busier and busier again, though, if they start focusing only on their dine-in business you wonder how long they’ll stay as proficient as they have become. So that’s just one way to look at it kind of a silver lining of the Covid. For money managers.

[00:01:44]
I wanted to mention that you know, for years, for the four years of the Donald Trump presidency money managers were constantly being annoyed and freaked out by the Trump tweets, any one Trump tweet could send the Dow Jones or the S&P 500 1 way, 1 to 2% any given day, we had some monstrous down days when Trump was in office because he would say things about China or trade or the steel industry or anything, now as money managers, our big scare, and it’s a real scare by the way. I keep looking at the PPI which came out today the producer price index and the Consumer Price Index and looking for bigger shifts when we’re going to see that real inflation number and again, I want to remind people those indexes are not being done the way they were done a year ago.

[00:02:26]
They’re mostly being done electronic and over the phone, which I think will have a big impact once they start going out there to businesses and doing those in person again, but inflation is the biggest scare we have now not what Donald Trump’s going to tweet. Bank of America also did like a recent in a report and found that when Trump’s tweets when he tweeted over 30 times in one day, tweeted over 35 times in one day, the stock market would fall but on days when he tweeted less than 5 times it went up, so it’s interesting. So we’re reaching a more new normal.

[00:03:00]
Where we’re going to have to worry about stock market things like overbought conditions, oversold conditions, inflation, major events that happened that are unexpected, you know, the systemic things in the market, things that just happened that you can’t control but we’re not going to have to worry about the tweets from Donald Trump anymore, which is kind of a relief.

So GameStop again for no reason is up to 288. It is not that short but I will look at these numbers and see how short it really is and a lot of times, I wonder if it sat at 120 and when it got support at 120, if the shorts reintroduced positions and we haven’t seen that reflected yet in the short numbers short numbers still only show about 35-40, again those are delayed by 2 weeks.

[00:03:42]
But if they re-upped on those positions in those shorts to take that thing back down to 20 to 30, where should be, they got hammered again, so it is up again today. Stocks Smart contest coming in the next few weeks, we’ll have more information about our very first Stock Smart picking contest and we’ll let you know. I think we’re going to make it open to everyone for the first one and then we may limit it, we may have different groups of it, will tell you more about that,  10-year note up a bit, market is overbought, so S&P 500 Oscillator, we quickly zoomed up in the oscillator because we did have short-covering earlier in the week and that pushed prices way up, pushed the buying way up early in the week.

[00:04:21]
So we’re getting a little bit of a down day today, down about 1% in the NASDAQ, DOW was up a little bit, but we may see a little bit of a sell-off here. And again, there are real concerns about inflation. And when you get these reports that show again increased inflation and when they had the producer price index today, you saw a rise in the biggest rise really is in fuel, energy prices, but we are getting that constant gradual creep in prices of just regular goods we buy, milk, you know because grains are going up, so grains go up, the cows cost more to feed, and then the milk they produce is more expensive. The same is true with meats. So we’re going to start seeing this gradual creep up in prices, that’s inflation.

[00:05:03]
It’s real and it is happening and when the inflationary numbers are bad and these come out every month. So you should be watching every month, this week every month should be your benchmark, you know, and in 25 days, you’re going to get the new CPI, in 30 days you’re going to get the new PPI. These numbers are going to start getting more and more real as the week numbers from a year ago roll off. So we had some negative numbers. We had deflation a year ago. So as those week numbers roll off the rolling record, that inflation is going to seem higher. So watch those numbers because they’re going to impact directly in these growth stocks, growth stocks are going to get smashed and get back into value. So I would have a good portfolio.

[00:05:45]
I would not be overweight anything, I would be if we’re going to be overweight anything, you probably want to be slightly overweight to value and commodities, things like that that are hedges against inflation.

STOCK WATCH

Let’s talk about a stock, so we’re going to talk about 2 stocks today. And these are what I would call seasonal play stocks, they’re good stocks anyway, but seasonality for them right now with what’s happening, what’s going to happen in the next week for two to three weeks? These are very good stocks to consider right now. Let’s do the marketing language thing. We operate as a digital sports entertainment and gaming company, it operates through business-to-consumer and business-to-business segments, the business-to-consumer segment focuses on providing users with sportsbook and iGaming products. Who are we? We are DraftKings. And here’s the other one. We own and manage gaming and racing facilities and video gaming terminal operations with a focus on slot machine entertainment.

[00:06:40]
Who are we? Penn National Gaming. So DKNG, DraftKings, and PENN and why are these so important right now? Well, there’s a little thing and I’ll tell you, this has been a part of my life. I had my original business, was a fantasy sports busines. I started when I was 23, I did it for 16 years. I loved it, every single day. I never felt like I was working. I used to write reports daily. I’d write 50 to 100 player evaluations every day. That was my job. And I did articles, I went to games, it was the greatest job ever, did it for a long time and just like any job, no matter how much you love it, you get bored of it. And so I stopped that business as I built another business, but I did love it.

[00:07:21]
I’m very well-versed in the sports community and I can tell you that are three major major major times when sports and gambling become the focused-on thing and I can tell you one of them is right in our face. Number one would probably be the Super Bowl that is one of the largest days for gambling ever. It always is. Number two, and these are all NFL-related, NFL is such a big deal for gambling. The other one is probably the opening weekend of the sports or the NFL season, that is generally huge weekend. Vegas is packed, gambling goes way up on that, because people have been aching to get out there and gamble again. And number three is what we’re looking at right now, which is March Madness. March Madness starts Sunday.

[00:08:04]
When the tournament brackets are announced and you’ll see at your office there’ll probably be distraction if you’re in your office because everybody will be filling out their pools and two companies that stand to benefit greatly from this are Draft Kings and Penn National Gaming, one online gaming. Draft Kings is going to have tons and tons and tons of draft pick your pool contests, pick the right team contest, all these different things on Draft Kings. And all the gambling that they can do in places where their legislative allows that, so these two stocks, definitely want to get in them right now and take advantage of the run through March Madness because these will be great stocks and I will tell you these are inflation hedges, people do not give up their vices in inflation. They do not, they will continue to gamble they will go on trips they’ll make it happen.

[00:08:47]
Maybe not as many trips, but they’ll continue to gamble. They’re still going to do some other things and they will continue to drink, those things are recession-proof, when things, even with inflation, They’re going to continue to still have a good time. And so Draft Kings, Penn National Gaming, great stocks to look at right now.

THE AVERAGE INVESTOR

I got a question, question from Roger. Roger wants to know, when a portfolio manager comes on, like CNBC or one of these other financial news shows and he says, we’re overweight Amazon or we’re overweight Apple, what does that mean? Well in general it means that they really really like the position. If a portfolio manager says we’re overweight, it means they are either adding to it to get overweight or they are you know, or they have a lot of the position and it’s grown because it’s grown so much and they’re keeping it at that position. Generally when you have a portfolio, it’s made up maybe of 20 positions.

[00:09:37]
Now if you have a 60/40 debt-to-equity ratio or 40/60, 40 debt 60 equity portfolio, that 60 part which is equity is generally made up of a bunch of stocks, a basket of stocks, that may be no greater than 5% each. And so overweight could be when a portfolio manager has a six or seven or eight percent position in a portfolio or groups of portfolios for that given stock and a lot of these growth stocks are overweight, in a lot of portfolios because they made so much money for people in the last year, all these high growth stocks, all the technology stocks, software-as-a-service stocks, they all did amazing last year.

[00:10:17]
So that is one of the reasons also we’re getting this rotation because portfolio managers are reducing and rebalancing all the time, generally portfolio managers will re-balance twice-a-year, some do it once a year, some do it quarterly, but that rebalance generally on growth stocks will happen and people will shave positions off gradually and you’ll see that, so hey another great show. Thanks for listening. Appreciate the questions, questions at Jeffrey@JeffreyKamys.com. Appreciate all the listeners and we’ll see you again next time on Stock Smart

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