The Chinese government is training its sights on the gambling industry in Macau, and that is potentially good news for U.S.-based casino operators and casino stocks.
Authorities in Beijing have publicly stated that they plan to implement new rules for casinos in the coming year. Exactly what those new rules will be remains to be seen. But if Chinese authorities treat the gambling sector as they have the technology space, then casinos in China are in for a rough ride.
We’ve already been given a glimpse into how potentially rough things could get when Suncity Group’s chief executive officer (CEO) Alvin Chau Cheuk-wa was arrested by Chinese officials for alleged “illegal cross-border gambling.” The company’s junket business has reportedly now been completely closed in Macau.
A crackdown on gambling in China could be lucrative for American casino operators as it could divert high rollers and money to the U.S.
Here are three casino stocks to consider buying on the dip amid the coming Chinese crackdown and the recent high profile arrest in Macau.
Casino Stocks to Buy: MGM Resorts (MGM)
MGM stock has had a good run in 2021, up 41% on the year at $41.81 per share. However, the share price has pulled back nearly 10% in the last month on growing anxiety around the Chinese gambling crackdown.
On the other hand, this provides a nice entry point for investors at current levels. And, unlike some other big resort and casino operators, MGM has comparatively little exposure to the Macau gambling scene. Currently, MGM Resorts has a 56% ownership in MGM China Holdings Ltd. that operates two properties within Macau: the MGM Macau and MGM Cotai resorts.
Stateside, MGM has been growing its sports betting app “BetMGM” that has proven to be extremely popular with gamblers. Dubbing itself the “King of Sportsbooks,” MGM sees expanding more into sports betting as a way to diversify its operations and lessen its reliance on casino gambling that is often influenced by economic trends. As the economic recovery continues into next year, MGM is well-positioned to capitalize across its portfolio of 29 hotels, resorts and casinos. This diverse portfolio stretches from Las Vegas and Atlantic City to Detroit and New York City. Currently, MGM has a market capitalization of about $19 billion which ranks it among the top five largest casino stocks in the world.
Churchill Downs (CHDN)
It’s not all slot machines and blackjack tables. Take Churchill Downs, for example. The Louisville, Kentucky-based company is a horse racing, online gambling and growing regional casino gaming company. And while Las Vegas and Atlantic City get all the attention, Kentucky too has a thriving, albeit smaller, gaming market. And of course there’s the world famous Kentucky Derby horse race that attracts legions of aficionados each year to arguably the world’s premier horse racing event.
Management of Churchill Downs is in expansion mode and growing into new areas that include operating a brand new casino in Terre Haute, Indiana. CHDN stock has performed reasonably well this year, up a total of about 13% to $220.69 a share. However, the stock has been essentially flat over the past month. Going forward, investors should expect continued gains for this popular and well diversified gaming stock.
Caesars Entertainment (CZR)
Caesars Entertainment is one of the biggest and best known casino operators in the U.S. and beyond. Caesars currently runs over 50 properties worldwide and has an outsized presence in Las Vegas. The company has been benefitting from the economic recovery with more and more tourists flocking to its gambling destinations. That has, in turn, benefitted CZR stock, which has gained 15% year-to-date to now trade at $85.73.
However, like the other casino stocks on this list, Caesars Entertainment has experienced a 10% pullback in the last month on reports of the situation in Macau, providing an opportunity for investors to strike. And Caesars has been doing incrementally better throughout this year. The company says its occupancy rate at its Las Vegas properties is currently 89%, the highest level it has been at since the pandemic began. Caesars is also experiencing success with its “Caesars Digital” business segment that is focused on sports betting, online gambling (iGaming) and poker.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.