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Show Me The Money

Regional casino operators have delivered for investors over the past five years and other gaming stocks haven’t disappointed.

Show Me The Money

There are lots of ways to make money investing in stocks.

There are growth stocks. Tech stocks. Stocks in emerging industries. Emerging markets. There are ETFs. You can trade on technical patterns. You can trade on momentum. You can arbitrage. You can short the high-flyers. You can trade based on value. For income. You can rotate from sector to sector. You can be a fundamental investor, a quant, a day-trader. And on it goes.

But if you are a buy-and-hold investor in gaming stocks, there has been one place to be over the past five years, and it wasn’t in the big glitzy names of the Las Vegas Strip or Macau that grab the headlines. Nor was it in the realm of technology or games whose brightest and newest toys are attention-getters.

The biggest winners were in the less storied sector of the gaming industry—the geographically diversified U.S. regional casino operators.

And among them, the two best stock performers during that period were Eldorado Resorts-Caesars and Penn National, each up nearly 900 percent from February 1, 2016 to early February 2021.

Those two companies beat out all the glamorous and famous names in gaming, in the U.S., in Asia, in Europe, anywhere in the world.

You didn’t do badly in the other geographically diversified regionals, either. Churchill Downs is up 400 percent and Boyd Gaming more than 200 percent.

And Full House Resorts, not quite a peer given its small size, is up 335 percent as of this writing, most of that coming just this year.

Those gains compare to a combined average of 61 percent for the three U.S. Las Vegas-Macau names—Las Vegas Sands, Wynn Resorts and MGM Resorts. However, that trio is down 25 percent over the past three years.

Their roller-coaster rides are actually typical of gaming stocks during this time. The Big Three gaming technology companies, for example—IGT, Scientific Games and Aristocrat—rose over 200 percent since early 2016, but are now 7 percent below early 2018. Much of that is mercurial Sci Games, which has bounced from highs to lows and recently has been up again. Aristocrat, despite being on a roller coaster, too, remains up nearly 40 percent from early 2016.

Everi, not quite a peer given its fintech and smaller games businesses, is the big winner in this space, up over 400 percent over five years and nearly 100 percent over the past three years.

Likewise, the pure Macau plays—the five Hong Kong-listed casino operators and Melco Resorts—are up 70 percent since 2016 but are down nearly 30 percent over the past three years thanks to fears of Chinese government policies and to Covid-19.

If you’re looking for sports betting and iGaming stocks that have been around for the full five years, Kambi, Entain, 888 and Flutter are winners, up 330, 160 , 80 and 45 percent, respectively. William Hill has lagged, down nearly 30 percent.

Other big buy-and-hold gainers over the past five years include Macau casino operator Galaxy Entertainment, up over 160 percent, and Nevada-based Monarch Casino and Golden Entertainment, up around 220 percent and nearly 100 percent, respectively. The latter two, though not as geographically diversified as Penn National or Boyd, are regional operators, also.

Except for the regional casino operators and a few other companies, gaming stocks have considerably underperformed the broader market over the three- and five-year periods.

One reason for the roller coaster is the same reason that casino stocks have historically sold at lower valuations than their sister entertainment and hospitality industries such as hotels and restaurants—the threat of governments to upend plans, whether that is China imposing restrictions that limit Macau gaming business or competitors opening in surrounding countries.

It also illustrates, as did the 2008-2009 economic crisis, that as consumer discretionary businesses, casinos are vulnerable to business cycles and to shocks such as Covid has administered in the past year. The old idea of gaming being recession-proof, if wounded by the 2008-2009 meltdown, has been put away for good by a virus.

There’s also a lesson on the positive side: Sometimes the tortoise wins the race.

Companies like Penn National, Eldorado-Caesars, Churchill Downs and Boyd don’t grab headlines like speculation about $10 billion casinos in Japan or multibillion-dollar projects in Macau. They just block and tackle, grow opportunistically through acquisitions and basically are well-run companies executing sound strategies. And quietly, over the past five years, they have provided the best returns in gaming.

Now, we have the proliferation of sports betting in the U.S., and each of these companies has positioned itself to capitalize on the opportunity.

We’ll come back in another five years and see how they have treated buy-and-hold investors. The odds are it will have been very well.

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