We learned this week the unfortunate news that the Securities and Exchange Commission had named pro golfer Phil Mickelson in a federal insider-trading lawsuit, and that the five-time major championship winner would have to forfeit over $1 million in ill-gotten profits and interest.
The penalty relates to Mickelson's trading in shares of Dean Foods (DF) in the summer of 2012, which yielded a gain of nearly 40% in just 10 days. Quite a return, to be sure, but as we noted on Mad Money this week, Mickelson would have been even better served to simply have held on to that position, which would now be up more than 260%, mostly due to the appreciation of WhiteWave Foods (WWAV), the organic foods company spun off from Dean Foods in 2012. But, alas, Mickelson now has nothing to show for that trade and, presumably, is looking for new investment ideas. (WhiteWave Foods is part of TheStreet's Action Alerts PLUS portfolio.)
With that in mind, let's give Mickelson some more traditional ideas, all of which are in spaces that he should know better than the food and beverage industry.
Let's begin with a company that should be familiar to Mickelson, his longtime equipment sponsor Callaway Golf (ELY). Golf equipment retailers have been out of favor for quite some time, due to the notion that the sport has seen secular declines in popularity in recent years. That thought process is not without merit, but much of that pessimism has been priced into shares, and there are also reasons to be more optimistic about Callaway's prospects going forward.
First, aggregate U.S. golf equipment sales are showing signs of bottoming, with year-over-year declines of 2.2% in April, following flat year-over-year sales in February and March. Furthermore, Callaway appears to be gaining share -- its aggregate share was up 80 basis points in April, including significant share gains in woods, wedges and ball sales. Rival Adidas' recent announcement that it was selling its golf portfolio -- which most notably includes the TaylorMade brand -- should also be seen as an incremental positive and an opportunity to gain market share, especially in the drivers and woods categories.
But perhaps the best sign of all was Callaway's first-quarter earnings results, which were in line with expectations, paired with much better-than-expected guidance. The company raised its full-year earnings per share projection from $0.15-$0.25 to $0.40-$0.50, a clear signal of optimism for the upcoming season. Using the midpoint of that new guidance, ELY shares trade at just over 20x earnings, a reasonable price to pay for this promising narrative.
Next, how about Dick's Sporting Goods (DKS), the sporting goods retailer and parent company of golf-specific retailer Golf Galaxy. The investment thesis for Dick's centers around the failure of rival The Sports Authority, which filed for bankruptcy in March and will close most of its locations by August. Dick's should benefit from both the reduction in competition and the acquisition of select high-quality TSA assets, and it remains in a space that is more "Amazon-proof" than most retailers, as many consumers want to handle their sports equipment before they buy it -- especially golf clubs. To that end, it also doesn't hurt that the company's golf business -- like the overall golf equipment retail landscape -- appears to be bottoming, with Golf Galaxy reporting its first year-over-year same-store-sales increase in over three years this past quarter.
We're not the only ones to have noticed these positive developments. DKS rallied more than 8% on Thursday, following the company's first-quarter earnings report, and on Friday analysts at both Morgan Stanley and Goldman Sachs upgraded the name, sending the stock up another 5%. However, shares were so depressed previously that they still only trade at about 12x next years' earnings estimates, even after this run, offering a significant discount to the overall market.
Finally, as Mickelson approaches an age that will allow him to play on the Champions Tour, let's recommend a more income-focused stock, a REIT with a strong dividend. It's common knowledge that Mickelson likes to gamble and is fond of Las Vegas, so why don't we give him a safer way to play that space? MGM Growth Properties (MGP), the recently spun-off triple net lease REIT consisting of 10 properties of MGM Resorts International (MGM), seven of which are in Las Vegas, could just be the one for him. This REIT should yield somewhere in the neighborhood of 6% and, if you believe the bullish commentary from MGM's CEO Jim Murren, could someday surpass Realty Income (O) as the largest triple net lease REIT within five years. The stock has performed well since its initial public offering in late April and would be a quality "buy and hold" option for any investor who wanted to participate in the success of Las Vegas, without having to watch any poker flops.
By all means, Mickelson should feel free to look for winners in the stock market -- he just needs to change his approach to stock screening. One would hope that he now knows better than to seek advice from his professional gambler friends. Instead, he should just look to the industries that he already knows well, where he will see a number of attractive investment options.