Are you an investor or a trader?

 

If you’ve been an investor, especially in gaming stocks, the past couple of years have been rough.

 

Buying long-term and holding on for company growth, like a real owner not a trader, has been a losing strategy in a market for gaming stocks that got worse than nearly anyone could have predicted.

 

You can’t make money when even the most glamorous names lose more than 95 percent of their value. And even as they rebound, it takes a 2,000 percent gain and greater to get even.

 

Even the most legendary value investors got wiped out as they kept buying stocks on the way down thinking that 40 percent or 50 percent declines were somewhere near the bottom.

 

By March, investors had hit the panic button and the forced selling from dwindling portfolios marked what appears to have been a bottom.

 

There is some question about whether we have another down leg to go, but there also are arguments that we don’t.

 

The case for a second round of declines got some support as the third quarter earnings season began and investors sold gaming stocks either because of disappointment or fear of a continually weaker consumer.

 

Consider:

 

Penn National reported earnings on October 21 that disappointed investors. Boyd followed several days later. Here’s what happened to regional casino stocks over the next five trading sessions. Here’s the damage since then:

 

Boyd                  -31.5 percent

Isle of Capri      -24.4

Pinnacle             -19.5

Ameristar          -13.3

Penn National  -10.1

 

For big caps, the plunge came after Wynn reported earnings the following Tuesday. Here’s the subsequent two-day decline:

 

MGM Mirage         -19.0 percent

Las Vegas Sands     -18.0

Wynn                       -14.6

 

Supplier stocks had been falling for several days before WMS reported earnings on Monday, but they’ve really dropped since. Here’s their two-day’s wreckage:

 

WMS                      -11.9 percent

Bally                       -11.7

IGT                         -11.5

Shuffle Master      -10.5

 

Those are huge drops in very short periods of time. Was Boyd, for example, really worth a third less as a company over five days?

 

The answer is of course not.  The real question is whether investors had valued it wrongly, either before its earnings release or afterward.

 

That is an interesting question given the debate between the bears, who see a protracted downturn in the Las Vegas locals market, and the bulls, who look at a 20 percent free cash flow return and say Wow!

 

Being more of the investor bent, we’re on the Wow! side figuring that recessions do end and now you can buy that Boyd cash flow very cheaply.

 

But there’s also a place for traders in this market. Anytime stocks plunge 20 percent to 30 percent in two days, they are almost sure to rebound.

 

And no sooner did the two-day plunge end than stocks rebounded.

 

But trading is a tricky business. You have to be nimble and sell at the right time or risk, to use one of those old Wall Street clichés, catching a falling knife.

 

By Frank Fantini

Frank Fantini is the editor and publisher of Fantini’s Gaming Report. A free 30-day trial subscription is available by calling toll free: 1-866-683-4357 or online at www.gaminginvestments.com.

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