In February, I told Investorplace.com readers that online gambling stocks were a bet that keeps looking sweeter and sweeter. As luck would have it (pun intended), there’s been a lot of big developments in the online gaming space since then, the main development being the legalization of online gambling in New Jersey, a likelihood that I discussed at length in the article.
Click to Enlarge Now that online gambling is a reality in the garden state, it joins Delaware, and of course, Nevada, as one of three states to do so. To be certain, the move by New Jersey is a big bet by politicians that the state will see a whole lot of new revenue from gaming. Some estimates suggest the state could see online gambling revenue of over $400 million in the first year alone, a number likely to grow close to $600 million after a few years.
That kind of money into a state’s coffers is something other fiscally strapped states will find very appealing, and I suspect that means more states are going to follow suit in the near future.
This renewed enthusiasm for online gambling stands to benefit two stocks which have become leaders in the space, online gaming site Zynga (NASDAQ:ZNGA) and B2B gaming company SHFL Entertainment (NASDAQ:SHFL).
Zynga’s social gaming backend and technology could be used to help operate online gaming in various states, as its online gaming platforms is a pioneer in the industry. Shares have enjoyed a stellar run in 2013, up nearly 50% year to date, partially on the growing acceptance of online gaming, and partially due to rumors that Yahoo (NASDAQ:YHOO) could be setting its sights on buying the company.
I suspect we could continue seeing a run higher in ZNGA shares, possibly another 20%-plus, especially now that the stock has spiked past resistance at the 200-day moving average.
Click to Enlarge In the case of SHFL, the company provides the most popular proprietary table games, as well as electronic gaming machines and technologies that casinos currently use. Moreover, these games also would likely be used by casinos in their online gambling operations to enhance their appeal to customers. The stock is up year to date, but a much more modest 8% when compared to Zynga’s big move.
SHFL recently reported first-quarter earnings, and though it beat on the bottom line, it failed to meet expectations on revenue. The top-line miss sent the stock lower, but shares did manage to bounce off the 50-day moving average and regain some buying momentum. I expect that momentum to continue, and that means traders could would be wise to bet on another 10-15% upside from here.
At the time of publication, Jim Woods did not hold a position in any of the stocks mentioned here.