Hot Stocks To Buy Tomorrow: Manchester United (MANU) Headed for a Quick Rebound
Thu, Apr 3, 2014
Hot Stocks Companies In Manchester United
They’re not even the best team in Manchester right now!
That sums up the current position of Manchester United (MANU).
United rests in seventh place (out of 20 teams). It’s lowest place ever for United in the two decades of the Premier League.
That’s a huge problem for the team. But it’s a much bigger problem for United’s future revenues.
Or so, at least that’s what the market thinks right now.
Top Four or Bust
There are two reasons most Americans will never accept European soccer like they do other sports.
First, is the time difference. To watch games live, you may have to wake up as early as 5 AM on a Saturday or Sunday if your team is in the early games.
The other reason is it’s confusing.
The game’s not confusing. No hands. Put the ball in the net. You get that.
The confusing part is the number of competitions.
Consider a top-tier Premier League team. They are playing for four titles at the beginning of the year. There is the League Cup (currently sponsored by Capital One), the FA Cup, the Premier League itself, and the UEFA Champion’s League (and the Europa League if you get third in the group stage of the Champions League).
It’s totally confusing for most Americans. After all, there’s only one Super Bowl to decide it all.
But here’s the thing about those competitions, they all mean a lot of money for the team.
Just making it to the UEFA Champions League means at least $35 million in revenue to the team.
Doing well means even more money. Bayern Munich won the Champion’s League last year and collected $70 million in prize money.
If you don’t make it there, winning the Europa League can mean $9 million in prize money. That’s what Chelsea FC got in for winning this after getting eliminated from the Champions League in 2012-2013.
Manchester United, in seventh place in the Premier League, qualifies for none of the big money European competitions next year.
As a result, the market thinks Manchester United is going to potentially see its revenues decline by 10% or more next year.
That, however, is not likely to be the case from a contrarian investor’s perspective.
The Rebound Opportunity for Manchester United
Right now United shares are down 20% from their highs. The slide has been long and steady as United’s fortunes seemingly get worse and worse with each passing week.
According to odds makers, they are currently expected finish sixth. Tottenham are three and a half times more like to take the fifth spot which qualifies them for Europa League competition.
That’s a big hit financially. Aside from the $9 million or so in prize money, they also miss out on nine extra home games in the tournament. That’s about $27 million in additional ticket and concessions revenue.
In other words, it’s a big hit and justifies the current share price decline.
But here’s what the market is missing.
Manchester United will not likely miss out on much revenue as currently expected.
The team claims to have 650 million fans around the world. And that means they could set up a number of “friendly” competitions throughout the year since they won’t be involved in the European competitions.
These matches which would likely take place in the Middle East, Asia, and South America. United has passed on offers for these games before. But now they would be much more willing to play them because they have the time and each one game would bring in at least $2 million per game and possibly as much as $4 million.
If they wanted to get aggressive, they could book as many as five to eight additional games which could mean additional revenues as high as $25 million for the team.
That’s not nearly as much as they make playing in the big European competitions, but it would offset all the losses the market is pricing into Manchester United shares right now.
The Risk and Reward
In the end, contrarian investing comes down to managing risk and reward.
Manchester United, in currently their worst year in two decades, are hitting rock bottom.
Its stock price has fallen right along with the team and the reduced financial opportunities they will likely have access to next season as a result.
That’s great for contrarian investors because Manchester United is currently one of the most recognized sports franchises in the world, it has been valued as high as $3 billion (its current market cap is only $2.5 billion), and there are plenty of fans that will turn out wherever United plays.
They have had one bad year. And will likely have another off year as they rebuild next season.
Still though, Manchester United shares have taken a short-term hit due to short-term problems. As a result, it likely makes a great contrarian hot stock that could return 10% and as much as 30% (if they finish in fifth place and qualify for the Europa League).
That’s a good bet in a market where there aren’t too many good bets.
Executive Editor, Contrarian Insights
The Group of Big Investors in United States.
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