Markets have had a decent week so far, with the S&P 500 up about 1.4% and the Nasdaq performing well. The stock market continues to ignore broader political and economic concerns, including tariffs, debt ceiling negotiations, and inflation. Inflation remains sticky, and the latest figures came in hotter than expected, largely due to rising food and energy prices. Despite the noise, the market is maintaining a positive trend, focusing on earnings, which have been strong this quarter. About 77% of S&P 500 companies have posted positive earnings surprises, with overall earnings growth running at 16.5% for Q4.
Looking ahead, CEOs are growing more cautious about future quarters. There have been more negative than positive earnings revisions, and companies are preparing for potential economic headwinds. Tariffs are becoming a growing concern, with FactSet reporting the highest mention of tariffs since 2019. However, analysts still project 13% earnings growth in 2025, driven mainly by margin expansion and stock buybacks rather than revenue growth.
Inflation is the key risk for 2025. Grain prices are rebounding after years of decline, which could further pressure food prices. Sticky rent prices and rising wages due to potential restrictions on legal immigration could keep inflation elevated. Higher inflation means lower bond prices and higher interest rates, which could challenge stocks. Currently, stocks are in an uptrend, while bonds are in a downtrend, indicating concerns about persistent inflation. Historically, these trends correct, either through a slowing economy or a market shift. The Federal Reserve is in no rush to lower rates, despite political pressure.
Energy markets remain a wildcard, with potential disruptions in the Middle East, Ukraine, and China. Despite pessimism about China’s economy, Chinese stocks have entered an uptrend, with the FXI ETF up 58% since mid-2024. A market recovery in China could drive further demand for oil and gas, adding to inflation concerns.
Our portfolio continues to perform well, with CloudFlare, TrueBridge, Peabody Energy, Idaho Strategic Resources, and Zeta posting strong gains. The twin momentum strategy has been outperforming the S&P 500. The portfolio’s average earnings growth is 147% over the past year, with analysts projecting 25% growth for this year. Institutional investors are recognizing these trends, driving further gains.
Deep value picks remain limited, but JetBlue Airways presents an interesting turnaround opportunity. The bond market, which is typically smarter than the equity market, suggests a high likelihood of survival. If JetBlue turns profitable, it could either thrive or become an acquisition target.
This week, we are adding two momentum stocks to the portfolio, both benefiting from the explosive growth of sports gambling.
SportsRadar Group (SRAD)
SportsRadar Group, based in Switzerland, is a leading provider of sports analytics and data. They offer real-time data collection, odd-setting, and integrity services to sportsbooks and media companies globally. Recent earnings grew 33% year-over-year, with 82% growth expected this year. Sales are also expanding rapidly, with a recent quarter seeing nearly 30% growth.
SportsRadar has a dominant position in the industry, partnering with major leagues like the NBA, FIFA, and NFL. They also work with DraftKings, FanDuel, and BetMGM, providing them with live data feeds crucial for micro-betting. The company is leveraging AI and machine learning to enhance its analytics, making it an essential provider for the growing sports betting market.
With its strong earnings, institutional support, and expanding market presence, SRAD is a top-tier momentum stock. We are setting a buy limit at $23.05.
Gambling.com Group (GAMB)
Gambling.com Group, based in the UK, specializes in performance marketing and lead generation for the online gambling industry. They operate websites like Bookies.com and Casino.com, attracting bettors and referring them to sportsbooks and casinos. The company earns commissions on deposits and player activity.
GAMB is expanding aggressively in the U.S. as sports gambling continues to spread. The business model is highly profitable, with earnings expected to grow 27% this year and revenue compounding at 55% annually. The company consistently beats earnings expectations, with strong margin expansion and increasing institutional interest.
We are setting a buy limit at $17.50.
Final Thoughts
Sports gambling is a massive growth industry with recession-proof characteristics. Micro-betting and parlay bets are fueling industry profits, driving demand for data and analytics services. Both SRAD and GAMB are well-positioned to capitalize on this trend, making them strong momentum plays.
That’s all for this week. Stay tuned for potential deep value picks in the coming weeks. As long as the market remains in an uptrend, we will continue to focus on momentum plays.
See you next week!