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What goes up must come down. But the reverse isn’t so. Several of the world’s biggest casino companies – including Wynn Resorts (NASDAQ: WYNN), MGM Resorts International (NYSE: MGM), Caesars Entertainment (NASDAQ: CZR) and Las Vegas Sands (NYSE: LVS) – are looking like tempting investments these days, now that they are selling at the lowest prices seen in more than a year.
But investors should save their cash for the craps table … and for a handful of lesser-known gaming stocks. The truth is that the international gambling sector is in the midst of a troubling multi-year slump resulting from a factor over which they have little control: a steep slowdown in gambling in Macau, often known as the “Las Vegas of Asia.”
If you believe in the long-term potential of big name gambling stocks and are wondering when the Macau mess might be sorted out, the simplest answer is that no one seems to know.
The slowdown that resulted from a change of policies and a crackdown on corruption has surely been exacerbated by the region’s economic slowdown. There’s definitely a lot of motivation to increase traffic and money flowing to this gambling mecca, but there also remains a lot of uncertainty over whether there is a fix on the horizon.
All this is to say that investors can find other gambling stocks that are doing quite well and look poised to build on their gains. The trick is to rethink your notion of gambling. What happens in Vegas may stay in Vegas, but these days there’s less of a need to go that far.
Commercial gambling is now legal in 21 American states and horse track betting is legal in 26 states. This evolution has paved the way for several smaller, domestic players to take market share away from the big names I mentioned above.
The stocks I recommend are for the most part smaller businesses that don’t have exposure to Macau.
Boyd Gaming (NYSE: BYD)
This Las Vegas company operates 21 casinos all around the United States from Nevada to Illinois, Mississippi and Atlantic City, N.J. Boyd is aggressively investing in growth, and is spending $45 million to expand its Delta Downs racetrack casino hotel in Louisiana.
Its stock has doubled over the last five years and is up more than 50% over the past year.
Churchill Downs (NASDAQ: CHDN)
Named for the iconic Churchill Downs racetrack in Kentucky, this business actually runs a very diversified operation, including slot and video poker in Louisiana, a casino in Maine, and off-track betting in multiple locations around the U.S. Its domestic focus has provided shelter from the woes in the Asian gambling sector, and its mix of operations offers exposure in many segments of the industry.
Churchill Downs has steadily grown its revenue in recent years, and this year’s high-profile Triple Crown victory by American Pharoah is sure to inject more interest in the horse racing sector.
Its stock is up almost 40% year-to-date. Over the past five years, it’s soared more than 270%.
Monarch Casino & Resort (NASDAQ: MCRI)
Monarch is a small player that operates just two casinos – in Reno, Nev. and Black Hawk, Colo. – and both are showing strong growth potential. The company says that the Reno gambling business is on the rebound after a slump, and it’s spending aggressively to expand its Colorado property.
Over the past five years, Monarch stock has almost doubled and year-to-date it is up more than 25%. If you believe there’s a lot more room for growth in the domestic gambling sector, Monarch deserves a closer look.
Does it makes sense to buy high? All three of these stocks have seen significant appreciation, and that means that would-be buyers should be mindful of the timing of their purchases and as much as possible should seek to take advantage of short-term dips.
Nonetheless, in today’s gambling business, there seems to be a pretty clear trend of the smaller players gaining momentum while the global giants retrench. The gaming stocks with the best outlook seem to be those that are already riding high.
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