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Why Casino Stocks Popped Then Eased Off Today

By Travis Hoium - Apr 7, 2020 at 4:22PM

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Investors still don't know when casinos will get back to business.

What happened 

Shares of casino stocks jumped in early trading today as Wall Street seemed bullish that the COVID-19 economic shutdown might end sooner rather than later. You can see in the chart below that casino stocks jumped as much as 30% as the entire industry moved sharply higher. But as the day wore on, the euphoria wore off, and the gainers were up no more than single digits at the close, which is still welcome for a beaten-down sector. 

Company Change at Daily High At the Close
Caesars Entertainment (CZR) 14.8% 4.8%
Eldorado Resorts (ERI) 30.4% 7.7%
MGM Resorts International (MGM 1.77%)  21.9%  5.6%
Penn National Gaming (PENN -0.64%)  19.4% Unchanged 
Wynn Resorts (WYNN -0.72%)  18.5% 7.3% 
International Game Technology (IGT 0.78%)  20.3%  2.3% 

Source: Google Finance. 

So what 

The market is trying to figure out when the COVID-19 shutdown of casinos will end and resorts can get back to normal. So, as the news changes every day, the market reacts as well. Monday and early today, the news seemed relatively positive with new confirmed cases of COVID-19 down for the first time, and traders immediately started to think that the worst might soon be over. On Tuesday, the numbers have been a little worse as the day wore on, so some of that optimism evaporated. 

Macao's skyline from the water at dusk.

The Macao skyline. Image source: Getty Images.

While it's understandable to be optimistic when data is good, it's important to take the long view on both the current crisis and the casino industry. COVID-19 is going to keep economic activity, particularly travel, low for the foreseeable future and may impact the economy into next year. 

That said, resorts eventually will get back to business and begin generating revenue, even if revenue is weaker than before the pandemic. So investors with a long, Foolish view of casino stocks should be looking for companies built to survive and then thrive after the crisis. 

Now what 

While the COVID-19 pandemic is hitting the U.S. hard, it's less pronounced in other parts of the world right now. China, Hong Kong, and Singapore, in particular, are starting to return to some level of normal activity, and casinos are open for business as well. Macao had an 80% drop in gambling revenue in March, but in the next few months, resorts may be generating positive cash flow if visitation to the region improves. 

I think investors should be looking at stocks of companies with operations in diverse regions of the world, including Asia, to reduce geographic exposure. Wynn Resorts and MGM Resorts, of this list, would be the first to benefit and may already be seeing promising signs for their Asian operations. 

Travis Hoium owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
WYNN
$67.84 (-0.72%) $0.49
MGM Resorts International Stock Quote
MGM Resorts International
MGM
$36.17 (1.77%) $0.63
International Game Technology Stock Quote
International Game Technology
IGT
$22.09 (0.78%) $0.17
Caesars Entertainment Corporation Stock Quote
Caesars Entertainment Corporation
CZR
Penn National Gaming, Inc. Stock Quote
Penn National Gaming, Inc.
PENN
$37.21 (-0.64%) $0.24
Eldorado Resorts, Inc. Stock Quote
Eldorado Resorts, Inc.
ERI

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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