Gaming has shut down. Investors have had their panic attacks. Gaming stock prices have evaporated.
Now what?
Have gaming stocks hit bottom, or are they at least so cheap that they’re screaming buys?
How long can companies survive with their doors closed? And how long will those doors be closed?
Here are some hints:
Pershing Capital principal Bill Ackman has now had his 15 minutes of fame, having famously, or infamously, called for the entire economy to be shut down and for everyone to stay home for 30 days, leaving the Covid-19 virus to die with no new victims.
Otherwise, companies will not survive, he said. Hilton Worldwide, as big and as successful and as well capitalized as it is, will go to zero.
So, what’s Ackman doing? He’s buying Hilton stock.
Or consider Peter Carlino, the sober-minded founder and CEO of REIT Gaming & Leisure Properties.
Carlino just reached into his wallet for $2 million to buy 80,000 shares of Gaming & Leisure at prices of $20.01 to $30.45.
Now, Carlino is a rich guy. He owns more than 11 million shares of Gaming & Leisure directly and through trusts. But two million bucks is serious change. Nobody blithely writes a check that big.
Do you think Carlino believes $20 or $30 is a bargain for a stock that recently sold for more than $50? If so, you can buy it even lower—$15.14 as of this writing. Note that the company’s $2.80 annualized dividend yields 14.3 percent at that price. Consider that in a world of near-zero interest rates.
And, unlike many other dividend-paying companies, Gaming & Leisure and fellow gaming REITs VICI Properties and MGM Growth Properties have secure rental incomes to help you sleep at night.
What if the REITs decide to give tenants a rent holiday? According to Barry Jonas of Sun Trust, Gaming and Leisure can survive 43 months without revenue, assuming a 25 percent cut in operating costs. MGM Growth Properties can go 81 months, and VICI, 58. Even the most nightmarish forecast has the Covid-19 crisis ending long before then.
Or consider book value. The measure has lost popularity in our software and service economy. But for companies that own hard assets, there’s comfort in knowing that, even if the business goes belly-up, value remains.
Golden Entertainment, for example, owns its real estate, buildings and much of its equipment. Golden’s book value-to-price is 0.55. In other words, pay 55 cents for the stock, and get $1 in assets. Dream sweetly through troubled nights with those numbers.
Let’s look at fixed-income investments from another perspective.
Just days ago, the Fed lowered interest rates to near zero in a move that was intended to reassure investors, but instead spooked them as a sign of panic.
The yield on the 10-year Treasury note fell to 0.7 to 0.8 percent, and even briefly slipped below 0.5.
Since then, stocks have plunged and plunged and plunged again. A 1,000-point drop in the Dow now seems almost like cause for celebration. Further, every day is filled with currency-slamming headlines about multi-trillion-dollar government programs to hold the economy together while trying to quell the virus.
So, what has the 10-year U.S. Treasury note done? Its yield has risen to nearly 1.2 percent.
Why would the yield rise 50 percent in this atmosphere? Because in scary times, those who want to preserve capital know the safest investments in the world are U.S. Treasury notes.
As Warren Buffet says, America has been a bull market for more than 400 years. There’s no reason to think it won’t continue to be.
So, we might not be at bottom, as even as shrewd a person as Peter Carlino illustrates. But this still might be the time to buy, as he also shows.
