Casino stocks have suffered losses much greater than that of many Wall Street general indexes over the past 12 months, but financial analysts remain bullish on numerous gaming companies.
The Vaneck Vectors Gaming ETF (exchange-traded fund) is down 26 percent since this time last year. The Dow Jones Industrial Average is down just seven percent during the same period. The NASDAQ has lost 4.4 percent, and the S&P 500 is down seven percent.
The Vectors Gaming ETF includes 42 gaming stocks. Its largest holding is Las Vegas Sands and its Sands China subsidiary. Other significant positions include Galaxy Entertainment, MGM Resorts, and Wynn Resorts.
The gaming industry is vulnerable to recessions. The overall market spun downward to end 2018, and economic fears continue to plague the casino business.
Despite nearly all casino stocks suffering losses to end 2018, analysts at JPMorgan say the current prices present buying opportunities for investors.
In a note issued this week, researchers DS Kim and Sean Zhuang, who work out of JPMorgan’s Hong Kong office, said they remain bullish on casino operators that are invested in Macau. The richest gambling hub on planet Earth, the Chinese enclave is expected to expand on its $37.5 billion 2018 win this year.
Most of the negatives are well known and already – if not overly – priced in,” Kim and Zhuang stated. “The trends in Macau have been surprisingly resilient despite a very challenging macro backdrop and ever-growing concerns over a downturn.”
“Granted, these stocks are tethered to macro factors and overall market volatility, but we see good values and believe the risk-reward is compelling for patient investors,” the analysts concluded.
Macau’s six licensed casino operators are Las Vegas Sands, Wynn Resorts, Melco Resorts, SJM Holdings, MGM Resorts, and Galaxy Entertainment.
Betting on Gambling
Earlier this month, Kim and Zhuang forecasted single-digit 2019 growth for Macau’s gaming industry. If enclave casinos come in near the upper ceiling of that prediction, the operators could be looking at a haul of more than $40 billion.
Only twice – 2013 and 2014 – has the industry eclipsed the $40 billion threshold.
Sands, Wynn, and MGM, the three US-based casino operators licensed in Macau, now control 60 percent of the Chinese gaming industry. All three stocks have lost value since this time a year ago. Sands is down 23 percent, MGM 24 percent, and Wynn the biggest loser at 36 percent.
The JPMorgan analysts believe Wynn is best suited for a rebound: “Even the skeptics would agree that the quality of Wynn’s assets is among the best in the global gaming industry, which is supported by the best-in-class management team.”
“Its historical earnings before interest, tax, depreciation, and amortization multiple of 10 times is too attractive to ignore,” Kim and Zhuang concluded. “We see an opportunity to purchase the best quality asset at a great bargain.”