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Gaming Stocks Return to Favor as DraftKings Soars to 52-Week High

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The stock market had another strong showing last week, building on its recent momentum and pushing near year-to-date highs. The Nasdaq and S&P 500 are both within just 2% of their summer peaks. Tame inflation reports along with declining treasury yields are acting as bullish tailwinds and have spurred additional buying in stocks.

Markets are attempting to stage a year-end rally as positive seasonality is underway. Follow-through days are beginning to pile up on the major indices as buying volume returns. From a longer-term perspective, the recent price action bodes well for a continuation of this new bull market. A big part of the 2023 rally has come from the fact that corporate earnings were not as dire as many had feared.

Third-quarter earnings are on track to witness positive year-over-year growth, the first period to do so after three consecutive quarters of declines. We now have results from 468 members of the S&P 500, or 93.6% of the index’s total constituency. Combining the actual results with those for companies that have yet to report, total S&P 500 earnings are on pace to increase 2.8% from the same period last year on 1.9% higher revenues.

This latest breadth thrust has prompted buying pressure in some of the more speculative pockets of the market. A brief pause as we enter the week of Thanksgiving would be healthy and allow certain stocks to reset.

DraftKings Stock Hits Fresh 52-Week High

Gaming and sports betting giant DraftKings (DKNG - Free Report) has been one of the big winners this year. Earlier in November, the company reported a narrower third-quarter loss of -$0.61/share, ahead of the -$0.69/share consensus estimate. Revenues of $790 million marked a 57% improvement from the year-ago period. DKNG shares have soared nearly 240% this year.

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A Zacks Rank #2 (Buy) stock, DraftKings has surpassed earnings estimates in three of the past four quarters, sporting an average earnings surprise of 13.23% over that timeframe. Analysts covering the Boston-based company have increased their earnings estimates recently. As we look ahead to fiscal 2024, estimates have been raised by 50.98% in the past 60 days. The Zacks Consensus Estimate stands at -$0.25/share, which would reflect an 83.51% improvement relative to this year.

Zacks Investment Research
Image Source: Zacks Investment Research

DraftKings is part of the Zacks Gaming industry group, which currently ranks in the top 35% out of approximately 250 Zacks Ranked Industries. Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

Other gaming stocks have joined the party. Light & Wonder (LNW - Free Report) , a Zacks Rank #2 (Buy), has also outperformed the market this year. Full-year earnings are on pace to rise a staggering 430% from last year. Las Vegas-based Light & Wonder, a leading developer of technology-based products for the gaming industry, has witnessed its stock rise a very respectable 47% this year.

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Analysts covering LNW have boosted their outlook for next year, with EPS estimates rising 23.94% in the past 60 days. Earnings in 2024 are expected to climb nearly 98% year-over-year to $3.52/share.

Zacks Investment Research
Image Source: Zacks Investment Research

Final Thoughts 

The stock market is telling us to keep an open mind regarding bullish outcomes in the future. Outperformance from industries like gaming paint a picture of a resilient economy.

Investors can continue to add exposure as the market shows strength. Make sure to take advantage of all that Zacks has to offer to uncover leading stocks like DKNG and LNW.

See More Zacks Research for These Tickers

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DraftKings Inc. (DKNG) - free report >>

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