A Portfolio That Thrives on Speed
“Faster, Faster, until the thrill of speed overcomes the fear of death.” – Hunter S. Thompson
Five days from now, the 2023 Formula One (F1) season will kick off in Bahrain.
And as we prepare for Martin Brundle’s first grid walk of the year, there are more story lines this season than there are letters in Gasselterboerveenschemonde, Netherlands.
If you’re a Ferrari or Mercedes fan, you want redemption.
Porpoising – which sounds like a sex act the young people are into – derailed Lewis Hamilton and George Russel’s season at Mercedes last year.
Meanwhile, Ferrari appeared destined for a return to championship form with Charles LeClerc and Carlos Sainz behind the wheel in 2022. But frustratingly, the team realized too late it’s hard to win races when the car won’t stop exploding.
If you’re a Red Bull fan, the chants are “three-peat” for “Mad” Max Verstappen.
And if you’re a Williams fan … well, look, the glory days of yesteryear are in the rearview. So, just root for everyone to have a good time. And hey, Logan Sargeant will be the first American F1 driver since Alexander Rossi, so that’ll be worth some headlines.
Maybe you’re excited that F1 returns this Sunday. Maybe you don’t care.
Regardless of either, strap into your six-point harness. Because today, I’m going to breakdown (not like Ferrari’s F1-75, but in a good way) the investment opportunities that exist in F1. And how you can celebrate, regardless of if your team or driver wins or not.
Best of all, this group of stocks is leaving the market choking on its exhaust.
1 Show = 160% Increase
In the U.S., NASCAR has long been the choice for fans of watching cars drive in circles for hours on end.
But there’s been a dramatic shift in recent years. All thanks to a single company and a single show.
In 1962, ABC aired the first F1 race in the U.S. Unfortunately, it would take nearly six decades for American audiences to finally care.
For fans to connect to a sport, not only do they need to understand it, they also need to know the heroes to cheer for and the villains to jeer.
Well, on March 8, 2019, Netflix (NFLX) launched the docuseries, Formula One: Drive to Survive. Front and center the show followed the lovable and charismatic Daniel Riccardo. He was the funny man hero the sport needed. The villain: his brash and driven teammate, Verstappen.
Beyond this positioning, the show explained to audiences how this alien sport of F1 worked. A collective, “Oh, I get it now!” spread from coast-to-coast.
Then, Season 2 of the show dropped on February 28, 2020. This was a real turning point. Less than two weeks later, the World Health Organization declared COVID-19 a global pandemic. And stay-at-home orders and travel bans followed.
People took the opportunity to binge-watch Netflix series such as The Tiger King, as well as Drive to Survive.
I know, you’re saying, “How much of an impact can one show really have?” Well, a lot, actually.
Take a gander at ESPN’s average U.S. viewership of F1 races since 2017:
From 2017 to 2018 – before Drive to Survive premiered – average viewership grew a paltry 1.9% and hovered around 550,000.
But following that Drive to Survive premiere right before the 2019 season, viewership jumped 22.6%.
Now, there was a pullback in 2020 due to the shortened season caused by the pandemic.
But the floodgates were open. After that, average viewership surged 53.6% in 2021. It then rocketed another 50% higher in 2022.
Over the last six years, the average audience for an F1 race has increased 160%! And it’s expected to grow again this year.
For comparison, NHL games currently average an audience of 373,000. That’s down 22% from last year.
Average viewership of an NBA game is 1.6 million.
NASCAR is seeing its largest audience in years with more than 3 million on average.
F1’s popularity has exploded from being a fringe sport to nearing mainstream in a handful of years. And with three races in the U.S. in 2023, expect another tick higher.
Now, to the important question … How can you snag a piece of this action for your portfolio?
Shift Gears from “Survive” to “Thrive”
Sadly, you can’t purchase shares directly in Haas team principal Guenther Steiner… at least not yet.
But for investors looking to add some F1 exposure to their portfolio, there’s still plenty of opportunities.
Best of all, a portfolio of F1 brands is already starting to break away from the market.
Now, if you’re only looking for a single name, you’re in luck, because there is one. And that name is Formula One Group (FWONK). This is the company that holds the commercial rights to the championship.
In the third quarter of 2022, the company announced revenue grew 4% to $2.28 billion, with Formula One accounting for $715 million of that. Fourth quarter earnings will be released tomorrow, March 1, before the opening bell.
Year-to-date, shares of Formula One are up 14%, outperforming the Nasdaq and the S&P.
Now, don’t let this blow your hair back … but not surprisingly, beyond Formula One Group, the other F1 opportunities largely entail performance auto manufacturers.
So, should you add them all to your portfolio? Probably not. Pick your favorite (or two to hedge your bets):
· Mercedes Benz Group (OTC: MBGAF) – Winner of eight consecutive Constructor Championships. And besides its own team, provides the power unit for Aston Martin, McLaren, and Williams. Shares are up 18% year-to-date. Mercedes revenue grew 21% in 2022.
· Ferrari N.V. (RACE) – Holds the record for 16 Constructor Championships. And besides Scuderia Ferrari, provides the power units for Alfa Romeo and MoneyGram/Haas. Shares are up 22% year-to-date. Revenue grew 19.3% in 2022 on record demand. Expect a stronger 2023.
· Renault SA (OTC: RNLSY) – Alpine may not be a contender in 2023, but Renault shares are winning. They’re up 35% year-to-date! Investors get freaked out about OTC stocks and some brokers list them as “dangerous.” But OTC is where you find great international names like Mercedes, Renault, Roche, Adidas, and tons more. Renault’s revenue grew 11.4% in 2022 as profits doubled.
· Honda Motor Corp (HMC) – The company makes the power units for Red Bull Racing and its sister team AlphaTauri. Shares are up more than 14% year-to-date. Revenue grew 17.3% last year.
Finally, don’t overlook names like Comcast (CMSCA), Netflix (NFLX) or The Walt Disney Company (DIS).
This is where eyeballs turn into money.
Comcast owns Sky Sports, which broadcasts F1. Netflix is home to Drive to Survive. And Disney owns Hulu and ESPN; it has a contract to air F1 races through 2025, with coverage provided by Sky Sports.
Shares of Comcast are up 7% year-to-date. Shares of Netflix and Disney are up more than 10% in 2023.
As the broader markets struggle with chicanes, shares of these eight companies are up an average of 18.33% year-to-date. That’s nearly five-times the performance of the S&P!
F1 is gaining ground in the U.S. And its audience continues to expand globally. That helps drive fans to manufacturers, as well as bring in increasing ad revenue for media companies. Solid names like the eight here may help your portfolio shift gears from “survive” to “thrive” this season. And it doesn’t matter if you’re a member of the “Orange Army,” decked out in Ferrari red, or happy that Mercedes went back to black in 2023, your portfolio can still take the checkered flag.
“What’s behind you doesn’t matter,”
Matthew (channeling Enzo Ferrari)
© 2023 Matthew Carr
All rights reserved.
This market commentary is opinion and for entertainment purposes only. The views and insights shared by the author are based on his many years of experience covering the markets. But nothing in this email should be considered personalized investment advice. Investments should be made after consulting your financial advisor and after reviewing the financial statements of the company or companies in question.