Sometimes, investors just need a reason to sell stocks, and the coronavirus is giving them one.
It’s no secret by now that stocks have sold off since Covid-19 went from being a remote Chinese phenomenon to a near-pandemic that’s disrupting supply chains and threatening economic hardship, perhaps even beyond the medical damage it could do.
What’s interesting is that stocks have sold off across the board—almost without regard to industry, valuations or long-term profit outlooks. That’s a mirror image of the recent trend of stocks rising—almost without regard to industry, valuations or long-term profit outlooks.
In some ways, the sell-off looks like a much-needed correction, rather than a reaction to the disease’s prospective impact, or a stampede out the door before the roof caves in.
For example, you might think there would be a far greater decline in Macau casino stocks after their 15-day closures—and near-empty gambling palaces since reopening—than a U.S. regional casino company.
After all, nobody in Black Hawk, Colorado or Cape Girardeau, Missouri has gotten closer to a corona than a 12-ounce bottle of beer. Yet pure play Macau operators SJM and Galaxy Entertainment are down just 10 percent and 17 percent, compared to Century’s 30 percent decline, Eldorado’s 27 percent and Boyd’s 23 percent.
And how about equipment operators, for whom any impact is likely to be less immediate and probably less in total? IGT is down around 20 percent, and Scientific Games has lost a third of its value since the coronavirus began making headlines in the U.S.
The worst of the sell-offs might be for understandable reasons. Eldorado, for example, appeared to be overbought when it peaked at $70.74, a double since September, and IGT and Sci Games already had begun sliding before the headlines hit.
So, are we being given a buying opportunity, or are we at the start of what could be a dreadful bear market, if Covid-19 becomes a pandemic and the economy goes into lockdown?
The short-term answer is, we don’t know what the virus will do, so we can’t know the near-term impact, or how long near-term will be.
Longer-term, the world will recover. After all, the great influenza pandemics of 1918 and 1919 were followed by the Roaring Twenties, and one of the great bull markets of all time.
And They’re Off!
It’s been noted here before, but it’s worth noting again: Churchill Downs is one of the best little-told stories in gaming.
Fresh evidence of the ability of CEO Bill Carstanjen and his management team to race to ever-greater profitability came in the company’s latest financial report. Fourth-quarter earnings doubled to 42 cents a share, capping off a year of 22 percent growth of $4.43 a share.
More impressive is the plan for continuing growth: transforming the Kentucky Derby into an international event with global revenue streams, property expansions, acquisitions and continuing online and sports wagering growth.
And, while CHDN doesn’t make the headlines as often as Nevada-based gaming companies, its success has not gone unnoticed by investors. Its 12-month trailing price-to-earnings ratio is a heady 32 times.
However, growth stocks usually aren’t cheap, and the right ones are worth the price.
