We’ve survived the dog days of summer and now head into September, historically the weakest month for U.S. stocks.
It’s also the last month of the summer quarter meaning we’re just weeks away from companies again flooding us with earnings reports that, recently among gamers, have become times for many companies to explain away blah financial results.
We’re also heading towards a presidential election in which both candidates seem bent on taking us down different paths to the same destination—enormous public debt.
In other words, we might not expect too much to happen on the investment front as we await seasonality to play out, quarterly reports to be released and elections to be decided. And, of course, we wait to see how low the Fed will cut interest rates and how that will affect real rates and investor decisions, whether on the merits of debt vs. equity or on motivating mergers, acquisitions and IPOs.
So, do we mark time or search out opportunities? The answer might be to do both.
It is tempting to look at the malaise in gaming stocks from Macau to Wall Street, from brick-and-mortar operators to online operators and to suppliers both physical and online and to see long-term potential. Or perhaps to see sickly valuations, buy now and wait on some tonic to awaken investors sooner or later.
And, eventually, those valuations should be realized, though that could take so long that investors risk missing opportunities in more dynamic sectors or changes occur in the landscape to where some companies never realize what today seem to be screaming values.
But in the nearer term we’re tempted to buy and hold, at least for a while, stocks of solid businesses that reward shareholders with dividends and material share repurchases.
That takes care of the marking time option.
The opportunities side of the equation in this less-than-exciting era for gaming is to look at companies with clear and successful growth strategies that are also generating growing profits. The names are no strangers to readers of this space. Companies like Red Rock Resorts, Churchill Downs, Light and Wonder and Aristocrat Leisure all are proven profit growers that appear likely to keep growing those profits. Of course, by now, their success is well recognized and they are no longer cheap by gaming standards with price-earnings ratios all above 20 times.
Then there are the companies specializing in the industry’s one big growth sector – digital, both sports betting and iCasino. The leaders also are familiar names such as Flutter, DraftKings, Sportradar and Better Collective.
Finally, there are the speculative special situations, almost by definition, high risk and high reward. They range from brick-and-mortar operators like Full House Resorts to niche suppliers like Inspired Entertainment to digital plays like Bragg Gaming.
Both in citing digital companies and those in special situations we must point out that these are prominent examples, but just that. There is a fairly long list of companies in both categories.
To summarize, this is a period in which to be conservative, almost marking time, but it almost always is time for the selective stock picks.
