Though most investments have suffered steep losses during this novel coronavirus pandemic, very few have experienced the wild volatility of Penn National Gaming (NASDAQ:PENN). At one point, PENN stock had hemorrhaged over 82% of its value. But since reaching a year-to-date closing bottom of $4.52 on March 18, shares have rebounded more than 200%.
Nevertheless, I completely understand the hesitation in betting on a name like PENN stock. With exposure to casinos and sports gambling, Penn National Gaming is a type of organization that performs well during bull markets. But in this black swan event where millions of people are losing their jobs, it just doesn’t generate much confidence.
Furthermore, the health crisis naturally has people avoiding each other. Obviously, this dynamic is especially painful for the casino and sports gambling industry. It’s a sector that thrives on the energy of big crowds. But this is exactly what state and federal authorities have warned their constituents against. Therefore, you couldn’t have a worse situation for Penn National.
Clearly, we’re facing a market and economic backdrop that features substantial uncertainty. When people don’t know if they can pay their bills next month, gambling is the last thing on their minds. Thus, I anticipate some wild trading ahead for PENN stock.
Nevertheless, if you’re a risk-tolerant contrarian, you’ll want to keep close tabs on Penn National Gaming shares. Here are three reasons why:
Gambling Resilience Should Support PENN Stock
During a crisis, most families hunker down financially. Gone are extravagances like fancy vacations. Instead, people focus on the essentials, which is why stocks like Kroger (NYSE:KR) and Clorox (NYSE:CLX) have performed relatively well. But PENN stock? Again, gambling right now is probably the quickest way for married folks to see divorce papers.
Still, if Las Vegas’ visitor volume statistics are anything to go by, investors should realize one thing: the gambling industry is surprisingly robust.
In this chart, I compare Sin City visitors — taken from the Las Vegas Convention and Visitors Authority — against recessionary periods from 1970 through 2019. For one thing, annual tourism growth averaged 3.9% during this period, which included multiple recessions.
Second and more importantly, when a recession does occur, the impact to Vegas tourism is limited. For instance, during the economic slowdowns of the early 1970s and early 1990s, visitor volume accelerated. And in other cases, recessions stunted momentum for only a few years.
Granted, every downturn is different. But even if the coronavirus substantially disrupts the economy, history shows that Las Vegas always attracts people. I would expect a similar return to normalcy in the other regions where Penn National Gaming operates.
Keep Economic Devastation in Perspective
Over the past three weeks, nearly 17 million Americans have filed for unemployment benefits. If that wasn’t bad enough, the real figure could be much worse. Throughout the nation, the suddenly jobless have overrun their states’ benefits programs.
It’s totally understandable. Nobody anticipated such a cataclysmic wave of labor market implosions.
At the same time, we can’t let headline numbers scare us into thinking in apocalyptic terms. Primarily, the job losses are concentrated in direct coronavirus-impacted sectors and low-skill work. According to the U.S. Bureau of Labor Statistics Employment Situation Summary, roughly two-thirds of the nonfarm payroll jobs lost in March (-701,000) are centered in the leisure and hospitality industries.
Of course, you would expect this! After all, traveling and vacationing are the last agenda items for any rational person right now. Indeed, you may find folks that are willing to pay money not to go on vacation.
Please don’t misunderstand the point: I’m not downplaying the tremendous pain that getting laid off (and unexpectedly) renders. However, the target audience that will drive PENN stock higher are better insulated from this downturn than most.
Consider that in 2014, people who made between $60,000 to $79,999 represented the biggest visitor demographic to Las Vegas. By 2018, those who made $100,000 or more took the top spot by a country mile.
Plainly speaking, the rich have recently bolstered PENN stock and they’re the ones least affected in this downturn.
Return of Demand
Finally, let’s talk about something that we can all agree on: being forcibly quarantined stinks. As social creatures, we need to interact with each other.
Going back to the Las Vegas visitor statistics, it’s clear that the human element in the gaming industry remains a vital selling point. Sure, nowadays you can gamble from the comfort of your own home, but it’s just not the same.
After perhaps several months of shelter-in-place orders, you can expect an explosion of gambling activity due to pent-up demand.
Plus, all sports leagues have been put on hold, which obviously has crimped PENN stock in the interim. However, this circumstance will not be a permanent affair. Once we have our national distractions back on TV, quarantined demand should rebound sharply.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.