“They call you Lady Luck, but there is room for doubt,” Frank Sinatra famously sang. “At times you have a very unladylike way of running out.”
Sinatra’s sentiments have been shared by an endless number of gamblers over the years, but at the peak of the Great Recession, casino operators started singing that tune, too. Casino revenue tanked in 2008 and 2009, dispelling the notion that gambling is a recession-proof industry. While casino earnings took barely a bump in the recession of 2000 to 2003, between the fall of 2007 and spring of 2009, major gaming stocks lost as much as 80-90% of their value.
But as the economy began to strengthen last year, casinos began to get up off the mat. Even the comparatively weak recovery has been a boon to gaming stocks. The best performers in the sector gained an average of 60% last year. But while it’s good to be lucky and it’s better to be skilled, it’s best to be both. Here are four casino stocks worth examining — two to play, two to pass:
Play:
Melco Crown Entertainment (Nasdaq: MPEL). With its luxe Altira Macau and City of Dreams casinos, Melco is well positioned to cash in on gambling growth in the former Portuguese colony of Macau, which is administered by the People’s Republic of China. There appears to be enough cash to go around in Macau — casinos took in more than $3 billion last month alone. At about $14.50, MPEL is trading at a 52-week high and is quadruple its 52-week low of $3.60 this time last year. With a market cap of $7.71 billion, the stock has a price to earnings growth (PEG) ratio of just 0.92, meaning it’s slightly undervalued.
Wynn Resorts (Nasdaq: WYNN). Wynn is well known for its opulent casino resorts (Wynn Las Vegas includes a Ferrari and Maserati dealership). The company also has staked a claim in China with high-roller friendly Wynn Macau, which boasts a sky casino and paintings by Matisse and Renoir. Monday night, the company reported that its second-quarter profit more than doubled on revenue of $1.37 billion, up 33% from a year earlier and handily topping analyst expectations. The company’s shares added nearly 2% to trade at about $168. WYNN is trading at more than double its 52-week low of $77.37 this time last year. The stock has a PEG of 0.93 and pays a dividend yield of 1.20%.
Pass:
Penn National Gaming (Nasdaq:PENN): Penn owns and operates casinos and racetracks that compete primarily with regional or tribal gaming facilities. The company’s major brands include the Argosy and Hollywood Casinos, which are located in 11 states including Missouri, Illinois, Louisiana, Mississippi and Pennsylvania. The company recently acquired the M Resort and Casino in Las Vegas. At about $40, PENN is trading 77% above its 52-week low last July and just hit a new high earlier this month. PENN has a PEG of 1.90, indicating that the stock is overvalued.
Boyd Gaming (Nasdaq:BYD): Boyd owns and operates casinos in Nevada, New Jersey and four other states. Key brands include the Fremont and Gold Coast Hotels and Casinos in Las Vegas and the Borgata Hotel Casino and Spa in Atlantic City. At $8.50, Boyd is trading nearly 33% below its 52-week high of $12.78 hit on Feb. 9. Unfortunately, the company’s recent financial performance has been spotty, with inconsistent profits.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
