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The Stars Are Aligning for This Stock in 2019

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Several key sectors are entering the final weeks of 2018 on a low note. The energy sector in Canada is in crisis, as oil and gas prices have sharply dropped since the late summer. Financials stocks have taken a hit due to the global stock sell-off and cannabis stocks have been hammered after a shaky rollout.

In addition, the IMF and World Bank expects growth to drop off into the next decade in most developed nations. The U.S. Tax Cuts and Jobs Act has resulted in higher earnings in 2018, but the effects of the booster shot will start to wear off in 2019 and beyond. Fortunately, there are sectors projected for big growth in 2019 that investors can turn to.

The U.S. Supreme Court elected to strike down a 1992 federal ban on sports betting back in May, which means that a multibillion industry could be reintroduced into the regular market. As usual, the process of legalizing sports betting nationwide has been controversial and mired in political debate.

The Stars Group (TSX:TSGI)(NASDAQ:TSG) celebrated the Supreme Court decision back in May. The company took advantage early and has already established a footprint in New Jersey, which moved to legalize sports betting statewide this summer. On September 13, Stars Group launched its BetStars online sports betting brand in New Jersey through its partnership with Resorts Casino Hotel.

The New Jersey Division of Gaming Enforcement revealed October revenue numbers earlier this month. Licensed operators took in more than $260 million in wagers in October, which was up 40% from September. Total revenue hit $23.9 million, with more than 75% of sports betting revenues coming from online operators. The Resorts property, which covers both DraftKings and BetStars, took in $5.1 million in revenue in October, with nearly all coming from its digital operations.

In November, Pennsylvania became the seventh state to see sports betting go live. Back in August, Stars Group partnered with Mount Airy Casino Resort to enter the state’s online sports wagering and gaming market. A year-old state law allows casinos to pay a $10 million fee to operate sports betting in that state. Investors should expect Mount Airy Casino Resort and Stars Group to launch online betting very soon.

Stars Group stock has dropped 29.8% over a three-month span as of close on November 23, pushing the stock into negative territory for 2018. Investors may have missed out on the bigger buying opportunity in mid-November, but the stock still looks attractive priced under $30 today. As of close on November 23, Stars Group posted an RSI of 49, which suggest that the company is in neutral territory compared to the oversold levels earlier in the month.

Industry experts are projecting that at least a dozen more U.S. states could legalize sports betting in 2019. More than half of these states already have operational sports books ready to take wagers as companies like Stars Group have worked hard to prepare for the rollout. In the first nine months of 2018, Stars Group has seen revenue surge 44.6% year-over-year to $1.37 billion. Adjusted net earnings are up 12.2% to $389 million.

Stars Group is in a fantastic position to see its revenue soar as more states adopt legal sports betting in 2019. The stock has marginally recovered after falling to 52-week lows, but investors should still consider stacking in the final weeks of 2018.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

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