Risky Business: Play The Gaming Industry With Caution

Posted:10/10/12
By:Freda Ding

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Risky Business: Play The Gaming Industry With Caution

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Trading in the gaming sector is a lot like gambling itself. The past few years have seen a huge slump in US casino growth. Unemployment tends to lag behind the worst of the recession. A full-fledged gaming operation also takes time due to high fixed costs and retaliation from neighboring residents. With recent job growth optimism and new resort approvals, investing in casinos is still risky.

The threat of web-based gaming is maturing. Zynga’s (Z) poker chief is leaving the company, a sign that the business has jumped the shark. That does not mean users are moving to real-life gaming though the casino market on the east coast is growing.

Las Vegas Sands Corp. (LVS) opened a site in Bethlehem 3 years ago which is generating healthy revenue streams, one of 11 in Pennsylvania. Casino ballot initiatives and openings are occurring in other states including Ohio, Oregon, Arkansas, Massachusetts, Rhode Island, and Maryland. New sites can only mean increased orders for actual games

Several of these initiatives have seen heated opposition. Though for others the appeal is potential job creation. Then there is the issue of tax revenue which can be redirected towards education spending.

Investing ideas:

One sign that there is still money to be made in gaming is the willingness of these gaming companies to protect licenses. Casinos in Maryland have spent $40 million on ad campaigns. And since the US market is spotting, you can always invest in vendors who are diversified internationally. Including:

1. Penn National Gaming Inc. (PENN, Earnings, Analysts, Financials): Penn National Gaming, Inc. and its subsidiaries own and manage gaming and pari-mutuel properties in the United States. Market cap at $3.26B, most recent closing price at $42.51.

2. Las Vegas Sands Corp. (LVS, Earnings, Analysts, Financials): Develops, and operates various integrated resort properties primarily in the United States, Macau, and Singapore. Market cap at $36.78B, most recent closing price at $44.70.

3. MGM Resorts International (MGM, Earnings, Analysts, Financials): Operates casino resorts in the United States. Market cap at $5.09B, most recent closing price at $10.42.

Companies supplying gaming solutions and equipment that are trading lower:

4. WMS Industries Inc. (WMS, Earnings, Analysts, Financials): Engages in the design, manufacture, and distribution of games, video and mechanical reel-spinning gaming machines, and video lottery terminals (VLTs) for the legalized gaming industry worldwide. Market cap at $905.5M, most recent closing price at $16.63.

5. Shuffle Master Inc. (SHFL, Earnings, Analysts, Financials): Develops, manufactures, and markets technology and entertainment-based products for the gaming industry worldwide. Market cap at $863.46M, most recent closing price at $15.43.

6. Bally Technologies, Inc. (BYI, Earnings, Analysts, Financials): Designs, manufactures, operates, and distributes advanced technology-based gaming devices, systems, and server-based solutions worldwide. Market cap at $1.98B, most recent closing price at $47.90.