February 2022 Research Update
Digital Department

Rising inflationary pressures, legalized sports gambling in New York State, and Disney’s profitable reopening headline this latest edition of Talking Shop.

As the latest inflation data from the Bureau of Labor Statistics shows, prices are rising – fast. The Consumer Price Index (CPI) for January rose 7.5% YoY, greater than estimates of 7.2% and the highest reading since February 1982. With components such as food +7%, gasoline +40%, and used vehicles +41%, we are seeing inflationary pressures throughout our daily lives. As the Federal Reserve is forced to raise interest rates to combat these pressures, we have adjusted our portfolios accordingly to mitigate the impacts of these market movements. Between adding consumer and industrial assets with strong pricing power such as Disney (CEA Holding: DIS) and Graco (CEA Holding: GGG), as well as exiting some highly valued tech exposure, we have diversified our portfolio while maintaining our long-term, high quality investment style.

As you may know, Online Sports Betting (OSB) went live in New York on January 8th. The Gaming Commission recently reported that $1.6 Billion of bets were placed by users in the state in the first month live. This sets a record for the most online wagers accepted in a single month in any state and is over 1.5x the amount wagered on sports in Las Vegas the month before. As we have seen in other states, market share in OSB is being dominated by a few large players – one of which is portfolio company DraftKings (CEA Holding: DKNG). With an increasing number of states legalizing sports betting, the American Gaming Association projects that Americans will wager $7.6 Billion on the Super Bowl this weekend, making it the most bet-on sporting event in American history.

As pandemic restrictions finally begin to ease, U.S. consumers are shifting their spending from goods to services. One of our newest portfolio additions meant to capitalize on this trend, Walt Disney Co. (CEA Holding: DIS), just reported blowout quarterly earnings as customers flocked back to its theme parks. After losing over $1 Billion in the Parks division in the final three months of 2020, the segment generated a profit of over $1.5 Billion just one year later, in the final three months of 2021. How? Disney innovated throughout the pandemic and is now successfully upselling new amenities that are enhancing the park experience to customers who are eager to purchase. With revenue now back to pre-pandemic levels but attendance still down 20% from its peak, Disney Parks should be substantially more profitable than ever before.

 

Best Regards,
The Sandhill Research Team

 

 

 

Disclosure: This has been prepared for informational purposes only and does not constitute, either explicitly or implicitly, any provision of services or products by Sandhill Investment Management. Sandhill Investment Management (“Sandhill”) is a registered investment advisor with the Securities and Exchange Commission that is not affiliated with any parent company. Third-party information in this report has been obtained from sources believed to be accurate; however, Sandhill makes no guarantee as to the accuracy or completeness of the information. All statements made regarding companies, securities or other financial information contained in the content are strictly the beliefs and opinions of Sandhill and are not endorsements of any company or security or recommendations to buy or sell any security. Holdings discussed are part of our Concentrated Equity Alpha (“CEA”) investment strategy. For a full list of CEA strategy recommendations for the preceding year, please email your request to compliance@sandhill-im.com.

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