Online gambling has supercharged the gaming sector. The amount of money bet on sporting events in the U.S. will surge 45% this year to almost $137 billion, research firm Insider Intelligence estimates.
Meanwhile, in the first quarter of 2023, the revenue from iGaming soared 22.7% to $1.48 billion, while “traditional gaming” outlets i.e. brick-and-mortar casinos, took in $12.30 billion, setting a new record. Gambling is also making a big comeback in China, as Macau’s gross gaming revenue last month climbed nearly 10% versus June and almost 40 times compared with the same period a year earlier.
Finally, Morgan Stanley expects Macau casinos to deliver relatively strong Q2 metrics. Given the strength of these gambling sectors, all of my best gaming stocks to buy will be in the gambling space.
Best Gaming Stocks to Buy: MGM (MGM)
MGM’s (NYSE:MGM) top line climbed a strong 21% last quarter versus the same period a year earlier. EPS came in at 59 cents, many times above the adjusted EPS of 4 cents that it generated year-over-year. Better yet, MGM has significant exposure to both online betting and Macau.
In the first quarter, the net gaming revenue of BetMGM, MGM’s online betting joint venture, soared 76% year-over-year to $476 million, and the joint venture reported that its EBITDA was positive for the first time in Q2. Moreover, BetMGM expects its bottom line to enter the black in the second half of the year. In China, MGM’s casino revenue soared 454% YOY last quarter to $670 million.
In Las Vegas, MGM expects to get significant boosts over the longer term from special events in the city, including the Formula One auto race, the 2024 Super Bowl, ad the relocation of an MLB team, the Oakland As, to the metropolis.
DraftKings (DKNG)
Two and a half years ago, the valuation of DraftKings (NASDAQ:DKNG) stock was through the roof, and profitability was nowhere in sight.
Now the shares of one of America’s top online sports betting platforms change hands at a reasonable forward price-sales ratio of 3.7, and the company looks poised to enter the black next year. Moreover, the firm continues to expand quite rapidly, as its top line soared 88% last quarter versus the same period a year earlier. Also impressively, DKNG increased its full-year revenue guidance to $3.46 billion to $3.54 billion from $3.135 billion to $3.235 billion previously.
Investment bank BTIG last month named DKNG stock as one of its top picks, citing, among other points, the company’s “product improvements, increasing parlay mix, a positive operating backdrop, and improved efficiency.” BTIG placed a $31 price target on the shares.
Best Gaming Stocks to Buy: Flutter (PDYPF)
Flutter’s (OTCMKTS:PDYPF) FanDuel reportedly has a 50% share of the U.S. sports betting market, making it by far the largest sports betting platform in America.
In 2022, the UK-based company’s revenue soared 67%, and it added 1.2 million American wagerers to its platform while it generated cash flow from operations of $1.57 billion, up from $1.05 billion in 2021. In the first quarter, Flutter’s growth continued to be strong, as its overall top line soared 61% and its U.S. revenue climbed over 90%. The company is likely to continue growing rapidly, given the continued massive expansion of sports gambling in the U.S. Add in the firm’s growing, positive cash flow, and Flutter’s outlook is extremely attractive.
Las Vegas Sands (LVS)
Las Vegas Sands (NYSE:LVS) is a great way to bet on Macau’s recovery. Indeed, Morgan Stanley on July 14 identified the name as a top pick because of its high leverage on the Chinese gambling sector. Indeed, the firm thinks that LVS is “the best way to play the Macau casinos sector,” Seeking Alpha reported. Historically, LVS obtains a roughly 25% share of middle-class gamblers in Macau. and it should be able to improve on that level going forward, the bank wrote.
Last quarter, the casino operator’s revenue soared to $2.54 billion, up from $1.05 billion during the same period a year earlier, while its operating income came in at $537 million, versus an “operating loss of $147 million” during the second quarter of 2022. And LVS noted that in June, it generated a very high EBITDA of $200 million.
The company also reported that its margins are generally rebounding as its revenue increases. And showing confidence in its outlook, LVS resumed its dividend last month, as it established a payout of 20 cents per share.
Best Gaming Stocks to Buy: Melco Resorts (MLCO)
Melco Resorts (NASDAQ:MLCO) is another good name that investors can use to benefit from the Macau recovery. On July 13, investment bank CBRE identified Melco “as one of the more attractive ways to invest in” Macau, and the firm cited the stock’s attractive valuation as its most alluring attribute. The price of MLCO stock has not changed significantly since July 13, and the shares have a very attractive forward price-sales ratio of roughly one time.
On Aug. 1, Melco reported strong Q2 results, as its property EBITDA, excluding certain items, came in at $267.3 million, versus a loss of $13.8 million during the same period a year earlier. “The strength of our Macau recovery is evident in the 43% increase in gross gaming revenue in the second quarter of 2023 compared to the first quarter of 2023,” Melco CEO Lawrence Ho stated.
International Game Technology (IGT)
International Game Technology (NYSE:IGT), which sells slot machines and other products used by casinos globally, is well-positioned to benefit from the proliferation of casinos around the world. Additionally, with IGT stock trading at a forward price-earnings ratio of 17.75 and a forward price-cash from operations ratio of about 6.5 times, the stock’s valuation is quite attractive.
Last quarter, the company’s revenue, excluding certain items, rose 11% versus the same period a year earlier, while its adjusted EBITDA increased 8% year-over-year, and its adjusted EBITDA margin climbed 1.9 percentage points to 42%. Fintel gives IGT a relatively high momentum score of 76.1.
Best Gaming Stocks to Buy: Roundhill Sports Betting & iGaming ETF (BETZ)
The Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ) allows investors to benefit from many trends within the gambling sector by buying just one stock. The ETF’s top holding is Entain, which along with MGM, owns BetMGM, the joint venture focused on sports betting and iGaming. DraftKings, one of America’s top sports betting platforms, is its second-biggest holding, while Flutter, whose FanDuel reportedly has a 50% share of the U.S. sports betting sector, is BETZ’s fourth-largest holding.
And through MGM and Caesars (NASDAQ:CZR), the ETF’s seventh and eighth largest holding, respectively, the owners of BETZ stock get exposure to the resurgence of Las Vegas. Since March 20, BETZ stock has jumped about 20%, showing that the ETF is indeed benefiting from the growth of U.S. sports betting and Las Vegas’ comeback.
On the date of publication, Larry Ramer was long MGM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
