We recently compiled a list of the 12 Best Up and Coming Stocks To Buy According to Hedge Funds and in this article, we discuss whether DraftKings Inc. (NASDAQ:DKNG) is the best up-and-coming online gambling stock to buy now.
Despite the concerns surrounding the market over the last few years, the broader market has performed exceptionally well as the S&P 500 reached new record highs crossing 5,300 points by mid-May. While the broader market has been surrounded by bearish sentiment since 2022 and even after its tremendous performance in 2023, many analysts have retracted their statements and are now expecting a positive future. For the year-end 2024, UBS and BMO expect the index to reach 5,600, Wells Fargo predicts that it will close out the year at 5,535 and even one of the most bearish analysts, Morgan Stanley’s Mike Wilson, raised the target to 5,400 from the prior 4,500.
Interest Rate Predictions
Interest rate hikes and cuts have been a major part of discussion in the markets for the last couple of years. In 2023, many analysts predicted up to six cuts in 2024 but the predictions faded over time with hotter-than-expected inflation data. At the Federal Reserve’s May 1 meeting, Chairman Jerome Powell showed hesitation in providing a specific time for any decision on rate cuts and said that the Fed needs more data before taking any step. However, the chairman did hint that the chances of hikes are highly unlikely. Some experts also believe that there may not be a rate cut this year as discussed in our previous article about best soaps and cleaning materials stocks.
According to CME’s FedWatch tool, 98.9% of the market is expecting interest rates to remain the same at the Fed’s June meeting while 1.1% believe that the Fed may raise the rates by 25 basis points (bps). Morgan Stanley predicts rate cuts to start in September at 25 basis points as they expect that inflation will begin to decline which could give the Fed enough confidence to start cutting rates. The FedWatch tool reveals that in September, 51.6% of the market isn’t expecting any rate cuts, 42.8% expects a 25 bps reduction, 5% expect rates to be cut by 50 bps and 0.6% believe that the rates will be 25 bps higher than the current levels of 5.25% to 5.5%.
Market Upside Potential Amidst Tightening Policies
Recently, we have seen another pullback in the market as the broader market has contracted by 1.5% between May 27 to 30. However, some experts still expect an upside and believe that the market is in healthy condition.
On May 29, former chief investment strategist for The Leuthold Group and Wells Capital Management, Jim Paulsen told CNBC that he is optimistic about the economy and highlighted its resilience despite previous recession predictions and challenges like inverted yield curves. He noted the strength of corporate balance sheets, overall economic health, liquidity, and positive recent earnings reports. He also acknowledged that tightening policies such as higher yields, a stronger dollar, a lower fiscal deficit to GDP ratio, modest monetary growth, and balance sheet contraction will eventually slow the economy and reduce inflation. Paulsen predicts that inflation will fall below 3%, creating favorable conditions for the market and suggesting potential for further upside. Moreover, Paulsen noted that the inflation has indeed come down if we compare it to 2022’s 9% and added that he does not think that the Fed target of 2% inflation is needed for “things to be good.”
Pixabay/Public Domain
Our Methodology
For this article, we used the Yahoo Finance stock screener to identify over 400 stocks that have experienced revenue growth of at least 40% year-over-year and have a market cap of above $300 million. We then narrowed down our list to 12 stocks that have seen growth in hedge fund sentiment between the fourth quarter of 2023 and the first quarter of 2024, have positive analyst sentiment, and have consistent revenue growth. We listed the best up-and-coming stocks in ascending order of their hedge fund sentiment.
The hedge fund data was taken from Insider Monkey’s database of 919 elite hedge funds as of the first quarter of 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple, our research has shown that we can outperform the market by imitating the top stock picks of best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is DraftKings Inc. (NASDAQ:DKNG) the Best Up and Coming Online Betting Stock?
DraftKings Inc. (NASDAQ:DKNG)
Year-over-Year Revenue Growth in FQ3 2023: 57.4%
Year-over-Year Revenue Growth in FQ4 2023: 44%
Year-over-Year Revenue Growth in FQ1 2024: 53.2%
Number of Hedge Fund Holders: 64
DraftKings Inc. (NASDAQ:DKNG) is a Massachusetts-based digital sports entertainment and gaming company that provides various products and services, including online sports betting and casino, DraftKings marketplace, and more. Investor sentiment was positive toward DraftKings Inc. (NASDAQ:DKNG) in Q1 as 64 hedge funds had stakes in the stock with a total stake value of $3.1 billion. This is compared to 55 funds, with positions worth $2.24 billion in the preceding quarter.
DraftKings Inc. (NASDAQ:DKNG) has a consensus strong buy rating among 26 analysts, and its average price target of $54.04 implies an upside of 50.87% from the last price of $35.82, as of May 30. It is among our best up-and-coming stocks to buy according to hedge funds.
On May 3, DraftKings Inc. (NASDAQ:DKNG) reported impressive first-quarter results with revenue growing by 53% year-over-year to reach $1.175 billion. The company’s increased guidance for fiscal year 2024 now projects revenue in the range of $4.8 billion to $5 billion, which reflects robust year-over-year growth expectations. Adjusted EBITDA for the year is forecasted to be between $460 million and $540 million. According to the company management, the key drivers of this financial success include efficient customer acquisition, enhanced engagement strategies, and a structural sportsbook hold percentage that is expected to rise to approximately 10.5% in fiscal year 2024. Finally, with a projected free cash flow of approximately $400 million in FY 2024 and cash and cash equivalents expected to reach around $1.6 billion by year-end, DraftKings Inc. (NASDAQ:DKNG) maintains a robust financial position.
Baron Discovery Fund stated the following regarding DraftKings Inc. (NASDAQ:DKNG) in its first quarter 2024 investor letter:
“Shares of DraftKings Inc. (NASDAQ:DKNG), a leading online sportsbook in the U.S., rose during the quarter following an earnings release that showed strong market share gains and an improved outlook for future profitability. Market share capture has been driven by investment in innovative product offerings that are resulting in strong customer retention. The company also announced the acquisition of JackPocket, a digital lottery courier service. We believe the acquisition will help DraftKings achieve a first-mover advantage in many states that offer the JackPocket service but have not yet legalized online sports betting and casino gaming. DraftKings is well positioned to expand margins and generate positive free cash flow as it grows revenues alongside the rapidly expanding U.S. sports betting market, in our view.”
Our list of up-and-coming stocks contains two online betting stocks. DraftKings Inc. (NASDAQ:DKNG) takes the second spot on our list of best up-and-coming stocks to buy and is the best online betting stock on our list. To check the other up-and-coming stock online gambling stock that hedge funds and analysts like, check out our free report on the 12 Best Up and Coming Stocks To Buy According to Hedge Funds.
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Disclosure. None. This article is originally published on Insider Monkey.