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There was one clear winner in Tuesday's election, and I'm not talking about the presidency. Legal sports gambling swept victories everywhere it was on the ballot.
And with the market rallying again, the best sports gambling stocks are due to surge even higher.
Voters approved sports gambling by a wide margin in Louisiana, Maryland, and South Dakota by comfortable margins. It seems people love to bet on sports, and states love the tax revenue sports betting can generate.
Since the Supreme Court's 2018 decision allowing states to set their own rules on sports gaming, 25 states have legalized it in some form. Three more states have pending legislation that could open up gambling in those states too.
For an industry that was all but outlawed just a few years ago, this is one of the most exciting growth sectors now as the people have spoken, and companies are racing to meet the demand.
This is a fantastic development for casino stocks, but plenty of other companies are getting into the ring, including sports betting apps and e-sports companies. The future of sports gambling will mean incredible growth rates for sports betting companies and huge potential profits for investors in these companies.
Here are my best three gambling stocks to ride this hot new trend...
A High-Flying Sports Gambling Stock with a Fantastic Future
The obvious first stock is DraftKings Inc. (NASDAQ: DKNG).
DraftKings is known for its daily fantasy sports games, where players compete against each other by choosing players they think will have the best performance each game. But DraftKings is expanding into betting too. It's currently offering sports betting services in seven states, including the massive New York and New Jersey markets. Its daily fantasy sports products are available in eight countries internationally with 15 sports categories.
Daily fantasy sports games are available pretty much everywhere in the United States. This gives DraftKings something of a captive audience to market to when states begin to allow online betting within their borders.
The fantasy sports game is risk-free for DraftKings as prize pools are a function of how much players have bet. Draft Kings is merely taking an administrative fee off the top. That's in contrast to traditional sports books, where a major upset could lead to major losses for the casino.
In addition to sportsbooks and daily fantasy, DraftKings also has online casino games.
As more states allow sports betting and other forms of gambling, DraftKings will be well-positioned to move fantasy players over to the platform's gambling apps.
DraftKings stock has had a huge run since its SPAC took it public. The stock is up over 200% in the past year, but many observers think DraftKings is still a buy.
The shares have pulled back about 30% in the past month as the NBA and MLB season have ended and fears rose that COVID-19 could end the college and professional football seasons.
A follow-up share offering that received a tepid reception didn't help the stock much either.
The long-term outlook is much brighter than the short-term sell-off is accounting for right now. Sports betting and online casinos will continue to spread across the United States. Earnings will grow at 40% or more a year, and the stock will continue to power the shares to much higher prices.
One of the Best Casino Stocks to Own
Penn National Gaming Inc. (NASDAQ: PENN) is primarily known as the owner of casinos and racetracks around the United States. It is a big player in sports betting as it currently operates live sports betting at its properties in Indiana, Iowa, Mississippi, Nevada, Pennsylvania, and West Virginia.
That makes it one of the key players in the industry, but the reason this is one of the best stocks to own in this space is because of Barstool Sports. Barstool started as a sports gambling newsletter and has grown into a massive sports entertainment operation. Penn National bought 36% of the company last year for $163 million in cash and stock. In three years, it will increase its ownership to 50% for another $62 million.
Barstool Sports caters to young sports fans and gamblers with a legion of podcasts, social media feeds, and even a radio show on SiriusXM. The upstart company's success has knocked industry stalwart ESPN off balance.
Joining Barstool's image and audience with a sports gambling app could do wonders for Penn National.
Penn National has a sports betting app that's approved in Pennsylvania and will spread across the country over the next few years.
It may end up owning the 20-40 years old online sports betting market in the United States.
Earnings for Penn National should also grow at better than 40% a year for the next five years, at least. That should continue to drive the stock price higher.
But our best sportsbook stock to buy is one you might not think of right away.
And that's why its growth potential is so huge...
A Sleeper Sports Betting Stock
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.