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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers