Gambling Stocks: The Winning Way to Profit From Casinos

Some gambling stocks offer sizable dividends, too.

Apr 16, 2014 at 6:15PM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some gambling stocks to your portfolio but don't have the time or expertise to hand-pick a few, the Market Vectors Gaming ETF (NYSEMKT:BJK) could save you a lot of trouble. Instead of trying to figure out which gambling stocks will perform best, you can use this ETF to invest in lots of them simultaneously. (Note that the industry uses the term "gaming," but it's hard not to see it as gambling when customers are risking, and losing, a lot of money.)

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on gambling stocks, sports a relatively low expense ratio -- an annual fee -- of 0.65%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This gambling-stocks ETF has outperformed the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why gambling stocks?
Whether you approve or not, casinos and gambling seem to be here to stay, and the games they offer are designed to make gamblers lose, overall, while the house wins. Not all casino companies are the same, though, so you should choose carefully or invest in a big basket of gambling stocks via a fund such as the Market Vectors Gaming ETF. Gambling stocks have dropped in value lately, offering even better entry points for interested investors.

More than a handful of gambling stocks had strong performances over the past year. MGM Resorts International (NYSE:MGM) surged 93%. It has become the hottest company in Las Vegas, it's doing well in China (with fourth-quarter revenue there up 27%), and it's looking to expand in Japan. It also has a well-diversified revenue stream, generating most of its Las Vegas Strip revenue from lodging, food, and entertainment. In its fourth quarter, MGM Resorts International posted a 10% year-over-increase in revenue and $330 million in consolidated operating income, compared with a $425 million loss last year. Some wonder whether its debt burden will constrain its expansion plans.

Melco Crown Entertainment Ltd. (NASDAQ:MPEL) jumped 57% over the past 12 months. Many investors are excited about its new Studio City casino, occupying a prime position on the Cotai Strip of Macau. Its other projects include the City of Dreams Manila casino, opening in 2014 in the Philippines. It's a Macau pure play for now, offering possibly greater reward in exchange for greater risk.

Las Vegas Sands Corporation (NYSE:LVS) advanced 43% and is yielding 2.7%. The world's largest casino-operator (by revenue), Las Vegas Sands has been growing briskly, with five-year average annual growth rates of 25.7% and 50.9% for revenue and earnings, respectively. With a forward price-to-earnings (P/E) ratio of 17, it's appealingly priced, too. Las Vegas Sands has been tackling its debt and rewarding shareholders with dividend growth and stock buybacks.

All of the companies above operate in the immense and growing Macau market. Gambling revenue in Macau grew 40% in February, and the takes in more than six times the revenue of Las Vegas.) Business is expected to keep growing in Macau in part due to a growing transportation system as well as China's growing middle class.

Other gambling stocks didn't do quite as well over the last year, but could see their fortunes change in the coming years. International Game Technology Corporation (NYSE:IGT) sank 15%, and yields 3.2%. It has been struggling lately, and it recently announced a 7% workforce reduction. Its first quarter featured disappointing adjusted earnings, down 13% over year-ago levels. Revenue was up 2%, but management's outlook was anemic due to weakness in the casino industry's gambling revenue. The bright spot was its social-gaming segment, where revenue surged 57% thanks to IGT's acquisition of DoubleDown Interactive. It reports its second-quarter results on April 22.

The big picture
If you're interested in adding some gambling stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Top dividend stocks for the next decade
Why gamble with your investments? The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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