It is an uncertain time. Economists, TV’s talking heads, and even honest-to-goodness investors plunking down their own and clients’ money seem unsure which way stocks are headed in the next year.
If there is a consensus building, it appears to be toward being sanguine, if not downright bullish, as we head into 2024.
This has got us thinking about whether there are some certain bargains in gaming stocks that we can be fairly confident are safe investments even if industry growth is muted.
If we look simply at consensus earnings forecasts and stock price targets, two companies that stand out are Wynn Resorts and Boyd Gaming.
Strategically, Wynn is the Tiffany of casinos. It is the high quality, upscale brand with a proven track record of performance that should command a premium price, yet is selling cheaply. As of this writing, the stock is a little over $86 a share and analyst consensus is for it to reach $117 within 12 months. That is a hefty expected appreciation of 36 percent.
Wynn is also modestly priced based on consensus estimates of $4.65 a share in 2024 earnings—around 18 times price-to-earnings.
Boyd is selling just under $60 and its consensus 12-month target is $75, a 25 percent appreciation. Given an earnings forecast of $6.21 a share next year, Boyd is selling at just 9.6 times next year’s earnings.
Of course, as with any investments, there are cautions. Wynn is subject to the effects of any change in Chinese government policies. In other words, geopolitical risk.
Boyd, on the other hand, as has been mentioned in this space many times, is as steady as it gets; a quality operator of regional casinos with a couple of relatively modest growth projects in the works.
As with all casino operators, Wynn and Boyd are vulnerable to any downturn that might occur in the U.S. economy, though the aforementioned talking heads and economists seem to think the nation is in the clear for the coming year.
So, let’s ask another question: Would you be more comfortable buying Wynn at $60 and Boyd at $50? Your answer, I suspect, might be “Heck, yeah.” Even if the economy tanks, Wynn at $60 and Boyd at $50 are almost no-brainers long term.
And you can offer to buy the stocks at those prices by selling puts of $60 for Wynn and $50 for Boyd.
As of this writing, you can sell the right for someone to put Wynn stock to you at $60 in June for around $1 a share. That annualizes to a 2.2 percent return even if the stock doesn’t get put to you.
For Boyd, you get paid a little over $1 a share to have the stock put to you in June for $50. That annualizes to a 3.5 percent return.
Not bad deals if you believe $60 and $50 are super bargains. You get paid for the opportunity to buy stocks you like at bargain prices and if you don’t get to buy them, you pocket some change in the meantime.
Obviously, there is a lot more to consider in options, and these two examples are offered only for illustration. Other companies and other prices and dates could have been used. The point is that in a time where gaming stocks appear to be underpriced and there is near-term uncertainty, selling puts is worth taking out the calculator and considering.
