Let’s talk about casino stocks. Whenever I have free time, you’ll find me at the casino.
I’m usually sitting at a poker table, confused why the guy next to me just split kings against an ace in blackjack. He wound up busting on the split, by the way. Then he had the nerve to blame the casino for the failed split. But I digress …
While many like me had to avoid casinos for months, I’ve started to notice far more gamblers flooding back in. Granted, it’s not much fun at the tables with screens separating everyone, but hopefully that won’t last too long.
There’s been so much foot traffic, the American Gaming Association (AGA) just reported that gross gaming revenue for January to March 2021 just topped $11 billion.
“Despite the coronavirus certainly not behind the US, casino revenue in 2021 is off to a blistering start. The $11.13 billion total GGR number matches the previous all-time record quarter set in the first three months of 2019,” as quoted by Casino.org contributor Devin O’Connor.
Plus, according to AGA President and CEO Bill Miller, “Today’s report shows gaming’s comeback is ahead of schedule,” declared AGA President and CEO Bill Miller. “The gaming industry is generating these impressive results with one hand tied behind our back as capacity and amenity restrictions remain across the country.”
While many casino stocks bottomed out months ago, there are still plenty of bargains.
In fact, here are three, I like a great deal.
Casino Stocks: Penn National Gaming (PENN)
After bottoming out around $7 in March 2020, Penn National Gaming popped to a recent high of about $133. It has since pulled under 200-day moving average of $83.10 but appears to be catching support.
Plus, if you pull up a two-year chart of the PENN stock, you can clearly see it’s oversold on relative strength index (RSI), moving average convergence (MACD), and the Williams %R. From here, I’d like to see PENN back to $133 in the near term.
Fundamentally, there’s a lot to like here. For one, PENN just posted Q1 earnings per share of 55 cents on sales of $1.28 billion, which was better than forecasts for 26 cents on sales of $1.14 billion. Two, the only reason the stock is down is because Q1 revenue was down 6% from 2019.
The pullback is temporary. With casinos reopening, and with PENN’s online sports betting app, I could see the stock back to $133 easily. I’d use the pullback as a buying opportunity.
MGM Resorts (MGM)
I’d also use the small pullback in MGM Resorts as a buying opportunity. At the moment, the MGM stock is consolidating in a tight channel between $37 and $42.50. With a recovery underway, MGM could break from consolidation and run to $50 in the near term.
While reopened casinos will surely help MGM, sports betting and iGaming could drive sizable growth, too. In fact, according to CEO Bill Hornbuckle, as quoted by Wall Street Reporter:
The sports betting and iGaming market is one of the largest and most exciting growth opportunities in the U.S.A. today, and BetMGM is emerging as a long-term leader. BetMGM began 2020 in just 3 markets and has ended the year with 10. It is now currently live in 12 states, and we expect to be in 20 states by the end of 2021 with access to approximately 40% of the U.S. adult population.
Casino Stocks: Churchill Downs (CHDN)
Churchill Downs is another oversold casino stock I’d buy on weakness.
After pulling back from a high of $258.32 to $191, CHDN stock appears to have bottomed out at double bottom support. It’s also excessively oversold on RSI, MACD, and Williams %R. From here, I’d like to see the CHDN stock back to $225 in the near term.
Earnings are improving along the way, too. In its most recent quarter, the company posted net revenue of $324.3 million, which was up 28% year over year. Net income came in at $36.1 million from a net loss of $23.4 million year over year. Adjusted EBITDA was up 100% from $55.3 million year over year.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
