These Are the Top 7 Underperform Calls on Casino Stocks

As an investor, it doesn't pay to follow the crowd.

In this series, though, we highlight a possible exception -- the collective wisdom of our CAPS community. Read the next section if you're unfamiliar with our methodology. Skip it if you want to go straight to the results.

Why this crowd is different
Jumping into a stock because your rich neighbor did, or because you heard about it from your friend's uncle who used to work on Wall Street, or because CNBC has been talking about it nonstop is a recipe for disaster.

If there's one thing I've learned as a stock analyst, it's that any stock can be gussied up to sound like a world-beater. If there's a second thing I've learned, it's that being a smart person doesn't make you a good investor.

In the hands of a smart person with good communication skills, the never-were and never-will-be stocks sound like tickets to instant fortune. The ancient Greek philosophers made the distinction between rhetoric and knowledge. The former is convincing; the latter is true.

That's why we factor in track record in our Motley Fool CAPS community. We invite everyone to give stocks an outperform (akin to a "buy" call) or underperform rating (akin to a "sell" call) in CAPS. We then use those opinions to calculate a rating for each stock -- from one to five stars (five being the best). But -- and this is a big distinction -- we give more weight to the opinions of folks whose picks have performed well in the past.

The top 7 casino underperform calls
So, with that methodology as prelude, I present to you the seven one and two-star casino stocks with the most CAPS community member underperform ratings (I used a minimum market capitalization of $100 million). Remember, stocks are rated on a five-star scale by our CAPS community, so one- and two-star stocks are consensus underperforms.

Company Name

 Market Capitalization (in millions)

52-Week Price Change

Price-to-Earnings (TTM)

CAPS Rating (out of 5)

Underperform Picks

Wynn Resorts (Nasdaq: WYNN  )

     $10,412

50%

96.9

*

346

Las Vegas Sands (NYSE: LVS  )

     $18,890

94%

NM

**

326

MGM Resorts (NYSE: MGM  )

      $4,144

8%

NM

**

258

Isle of Capri Casinos (Nasdaq: ISLE  )

        $278

(19%)

NM

**

59

Boyd Gaming (NYSE: BYD  )

        $627

(33%)

36.4

**

58

Pinnacle Entertainment (NYSE: PNK  )

        $617

3%

NM

*

58

Ameristar Casinos

        $974

(2%)

NM

**

51

Source: Motley Fool CAPS. NM = not meaningful. Data as of Aug. 25 close. Price change from Aug. 28, 2009.

When I tabulated the casino stocks with the most outperform picks, we saw that Melco Crown Entertainment (Nasdaq: MPEL  ) was the only big vote-getter with a consensus outperform rating (four stars). Our CAPS community is down on the casino industry as a whole.

Wynn is the casino stock rated underperform by the most CAPS members. Do you think this lack of love is deserved? Make your thoughts known in CAPS by clicking here. Or just click through to do further research on one of these stocks.

If you'd like some more reading, check out The Market-Beating Secret Buffett and Lynch Won't Tell You.

Anand Chokkavelu owns shares of Melco Crown Entertainment. Ameristar Casinos is a Motley Fool Hidden Gems pick. Melco Crown is a Global Gains recommendation. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 27, 2010, at 1:08 PM, dragonLZ wrote:

    What I'd like to know is what was the LVS rating back in 2009 when LVS was at $2 (1,400% ago).

    If it was 1 or 2 star stock back then, that just shows you how "reliable" CAPS community ratings are.

    p.s.

    Are you trying to tell us to follow these guys?

    http://caps.fool.com/Ticker/LVS/Scorecard.aspx?pagenum=1&...

  • Report this Comment On August 27, 2010, at 1:27 PM, aroysmith1 wrote:

    dragonlz. I'm right you. I have have seen so many 4&5 caps loseing money, and so many 2&3 caps make money. I thinks their a joke. If you don't

    buy LVS, than you don't money. Even the Fool's will tell you that.

  • Report this Comment On August 27, 2010, at 1:31 PM, aroysmith1 wrote:

    I should hve read it before I sent it. Sorry for spelling, but not my opinion.

  • Report this Comment On August 27, 2010, at 1:51 PM, spokanimal wrote:

    Not really surprising that the darling of your "caps" community (Melco) would do relatively poorly while those rated lower by caps (wynn,lvs) have done outstanding.

    The Motley Fool "caps" community IS the "herd", as modeling superstar, Don Hays, likes to call it.

    "Caps" is usually wrong for the same reason that the AAII survey makes such a fine, contrarian indicator.

    S

  • Report this Comment On August 27, 2010, at 6:17 PM, JohnnyJay wrote:

    I'm not a big fan of the rating system that is used my TMF. I live in Vegas & can see first hand how these Gaming Companies are doing. It will still take another 18 to 24 months before things look good for any of these companies. Once the economy gets better than people will start to visit Vegas & gamble again. So I feel that the rating stars are just a joke to the FOOL's who beleive it. I rate the top 3 companies of LVS, WYNN & MGM as 3 1/2 stars. They all have exposure to China with massive casino's & within a short time those casino's will bring in hugh cash flows to all three.

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