Quandary: Bull and Bear, I have called you today because, once again, we are getting confusing signals. What will the Fed do? Will whatever they do be right or wrong? Are regional banks strong? If more banks fail will it take down stocks all around? If…
Bull: Quandary, stop it. There’s no reason to get all worked up. A few banks got their risk profiles out of kilter. The system is sound and…
Bear: Now it’s my turn to say stop it. I’m not going to opine on the health of banks, even though I have an opinion, and as you can guess, it’s not that we are in a salubrious policy or regulatory environment.
The bigger issue is that consumers are starting to cut back on spending and are going deeper into debt. Combine that with whatever the Fed is doing—and Lord even the Fed doesn’t appear to know that—and it is bad for the economy. And what is bad for the economy is bad for discretionary consumer spending, which is bad for the profits of casino operators, which is bad for their stock prices.
Bull: Bear, if I may continue, please. Talk about not knowing. Apparently, you don’t know that gaming revenues are holding up, that Las Vegas is going to have a boom year, that sports betting is more than offsetting any legacy gaming revenue declines.
Bear: Yeah, the more money sports betting operators take in, the more they lose. Classic business model. I’ll have another DraftKings, bar keep.
Bull: Okay, Mr. Sarcasm. I will opine. The regional banking system is strong, and the venture capital investors priming the Silicon Valley pumps aren’t the same as the hedge funds that invest in gaming stocks. And if you ever want an industry that can smooth out the peaks and valleys of a stock portfolio, just pick a basket of casino operators.
Bear: Bull, I’ll agree with you on a relative basis. The gaming business could suffer less than other consumer discretionary industries if the economy slows or even tanks. But losing less money isn’t what Quandary wants.
Quandary: Yes. Bear, you said it. Relative, that’s the word. It means I still don’t know where to get a return.
Bull: Q, let me see if this helps. Look for dividends. A number of gaming companies now will pay you to own their shares—a good cross-section of the industry, in fact: REITs VICI and Gaming & Leisure Properties, national casino companies like Boyd, Nevada operators like Red Rock Resorts and Monarch Casino, technology and game companies like IGT, as examples.
Gaming companies across the board are slashing debt and leverage ratios. Golden Entertainment, for example, could soon be under one times. Monarch will be at no times; it won’t have any debt, just cash flowing in.
And gaming valuations are still lower than those of other entertainment and hospitality industries so there should be less downside in a market sell-off and more upside if investors ever wise up and give gaming operators the multiples they deserve.
Quandary: So what should I do?
Bull: Worried about bad times for stocks and/or the economy? Buy a few shares of stock owner-friendly gaming companies, step inside a casino and watch players hoot and holler as they go to the slot machines and table games to transfer money into your pockets.
Quandary: Bear, sorry. But I think Bull has a point. Bar keep, I’ll pass on the DraftKings, too. Instead, give me a REIT with a splash of dividend-paying casino operators.
