Top Stock: CHDN Just Hit the Legalization Jackpot

Gambling stocks are off to the races today after the U.S. Supreme Court struck down a 25-year ban on sports betting in most states. States are now free to legalize betting on game outcomes and point totals across hundreds of pro and amateur leagues that were off-limits yesterday.

With American sports betting a $150 billion (largely black-market) industry last year, this opens up a monster of an opportunity. And mobile is the name of the game.

Our Pick: Churchill Downs Inc. (Nasdaq: CHDN) has been waiting for this moment for years. The company, best known for starting the Kentucky Derby in 1875, recently achieved 200% revenue growth from online casino gaming, yet managed to keep a 35% profit margin. At $4 billion market cap, they have the scale to dominate the mobile sports betting market. One caveat – the stock is expensive at 33x earnings and on a price-per-share basis ($295). Still a good bet.

Runner-Up: Keep an eye on DraftKings. It's privately owned, but this company has the mobile know-how and aggressiveness to launch a surprise attack in this new space. I'm looking for an IPO in the next 9-12 months.