Gambling ETF: Time to Take Chips Off the Table

ETF Trends

With a critical non-farm payroll report on the docket for Friday, one sector ETF traders and investors are sure to be focusing on is consumer discretionary. And it has been a good year for the group as measured by the Consumer Discretionary Select Sector SPDR (XLY) , which is up over 15%.

By virtue of its global composition, the Market Vectors Gaming ETF (BJK) is another discretionary ETF that should be in the spotlight Friday and as other international, Asia in particular, data points are delivered over the coming weeks. BJK has been a solid performer this year with a 13% gain, but there are signs investors that have enjoyed winning bets on the lone gambling ETF might want to consider cashing in their chips. At least for the near-term. [Luck be a Lady for Gaming ETF]

Stellar performances this year by many of the major names in global gambling this year have the group trading at valuations that some perceive as frothy. Indeed, Macau, the world’s largest gambling hub, has shown impressive revenue growth, but the summer traditionally represents a lull in revenue for the Chinese territory. [Lady Luck Walks Out on Gambling ETF]

“Near term, we believe the sector is likely to consolidate, judging by the following observations. 1) Valuations are close to their historical average: EBITDA is trading above the historical average and P/E is only slightly below, leaving limited room for significant upside. Increasingly, market needs to use the option value of future casino projects (to be opened in 2H15- 2017) to justify share price upside. 2) Stock prices are not reacting to good news: Sands China fell 2% (on June 5) after receiving government approval to sell its Four Seasons serviced apartments. 3) Lack of short-term catalysts: Revenue is seasonally slower before entering the late July summer holiday,” according to JPMorgan research note posted by Ben Levisohn at Barron’s.

According to JPMorgan, investors should take profits in Melco Crown International Development and Galaxy Entertainment. Those two stocks combine for nearly 9% of BJK’s weight.

Potentially making matters more troublesome for BJK is the fact that marquee U.S. gambling names, stellar performers in their own right for the bulk of this year, have shown signs of wilting in recent days. Over past week, shares of Las Vegas Sands (LVS) have lost more than 4%. Rival Wynn Resorts (WYNN) is down more than 1%. MGM International (MGM) is down 4.4%. That trio represents about 19% of BJK’s weight.

Market Vectors Gaming ETF

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ETF Trends editorial team contributed to this piece.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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