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4 Gaming Stocks on a Hot Streak

Zacks Equity Research

People keep flocking to casinos enamored by the game of chance, with the aspiration of winning it big and the desire to let loose. Destinations like Las Vegas and Macau are the gambling hotspots. The allure of entertainment and gambling, in both hotels and casinos, has in fact aided these cities form a tourism economy unlike any other place on earth.

Casino players’ properties in Vegas are continuing to cash in on the favorable trends of an improving employment rate and positive tourism numbers for quite some time. However, a tough operating environment in Macau weighed on casino stocks in 2015 and for the most part of 2016.

Things did not look rosy for the casino industry until the mecca of casino gaming – Macau – slowly started returning to life. Gaming revenue in Macau grew on an annual basis in November to register four consecutive months of gains, following the extended slump of over two years.

The positive impact on the industry can be verified by the past four-month return of VanEck Vectors Gaming ETF BJK. Notably, the fund looks to track the MVIS Global Gaming Index and provides investors direct exposure to the casino gaming market. The fund added about nearly 7% in the same timeframe.

Macau Issues & Turnaround

Notably, gaming revenues in Macau have been under pressure since Jun 2014, given the crackdown on corruption in China. This compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

Consequently, this lowered footfall at local casinos. A slowdown in China, tighter visa policies, political unrest and a smoking ban on mass market gaming floors compounded the woes.  

In fact, the anti-graft corruption drive undertaken by the Chinese government is still keeping VIP gamblers at bay.

However, the industry has finally started to stabilize after a protracted slowdown as evident from gambling revenue growth in the past four months. Efforts undertaken by casino operators to revive revenues by adding new resorts and more non-gaming facilities in order to attract tourists and recreational gamblers have started yielding results.

Particularly, new resorts including Wynn Resorts Ltd.’s WYNN Wynn Palace (opened on Aug 22) and Las Vegas Sands Corp.’s LVS subsidiary, Sands China Ltd.’s The Parisian (opened on Sep 13), continue to attract tourists and leisure gamblers. This is  propelling revenues higher.

4 Key Picks

With the help of the Zacks Stock Screener, we have zeroed-in on four promising stocks in the Gaming industry that flaunt a Zacks Rank #1 (Strong Buy) and have rallied an impressive 10% or more over the last four months. You can see the complete list of today’s Zacks #1 Rank  stocks here.

MGM Resorts International MGM is a holding company that primarily owns and operates casino resorts through wholly owned subsidiaries. The company reports through two operating segments: Wholly-owned Domestic Resorts and MGM China. The company’s new entertainment offerings in the pipeline are expected to lead to increased profitability across its properties.

Price gain over the last 4 months: 18.5%
This year’s expected EPS growth rate: 112.1%
This year’s expected Sales growth rate: 2.2%
Change in Full-Year Estimate Revision (over 60 days): 95.2%

Monarch Casino & Resort, Inc. MCRI, through its subsidiaries, owns and operates Atlantis Casino Resort Spa, a hotel/casino facility in Reno, NV; and Monarch Casino Black Hawk in Black Hawk, CO.

Price gain over the last 4 months: 10.5%
This year’s expected EPS growth rate: 14.3%
This year’s expected Sales growth rate: 6.7%
Change in Full-Year Estimate Revision (over 60 days): 7.9%

Melco Crown Entertainment Limited MPEL is an owner and developer of casino gaming and entertainment resort facilities primarily in Macau. It owns and operates City of Dreams, Altira Macau, Mocha Clubs and Studio City. Solid contribution from Studio City along with better performance at the non-gaming segments should continue to drive the stock.

Price gain over the last 4 months: 36.5%
This year’s expected Sales growth rate: 10.2%
Change in Full-Year Estimate Revision (over 60 days): 70%

Based in Las Vegas, NV, Las Vegas Sands is a leading international developer of multi-use integrated resorts primarily operating in the United States and Asia. The company’s solid business model, extensive non-gaming revenue opportunities, high quality assets and attractive property locations bode well.

Price gain over the last 4 months: 22.6%
Change in Full-Year Estimate Revision (over 60 days): 6.8%

Bottom Line

The bouncing back of Macau revenues has given an impetus to the casino sector. We believe that investing in the above-mentioned stocks should yield strong returns for your portfolio as these are poised to grow further on the Macau rebound.

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