In the current bear market, investors should be looking to shift their assets out of growth stocks and into stable, dividend paying sectors. According to analysts, Gaming stocks are a solid bet. Investing in casino stocks now should provide investors with an impressive dividend yield and some upside potential after a 2018 slump.
Las Vegas Sands, Wynn Resorts, Melco Resorts, and MGM Resorts are all trading down for the year. Some have slumped as far as 35 percent. Much of the negative price action is in response to disappointing data from China’s Macau gaming industry. The area is the largest gambling hub in the world and has consistently posted revenue growth that hasn’t impressed Wall Street, and is showing signs of stagnation. In the grow-or-die world of Wall Street, the negative news has been a major headwind for casino stocks.
Adding onto the sell-side sentiment has been the interest rate hikes from the Federal Reserve. With these stocks having a larger amount of debt on their balance sheets, any rate hike will be bad news for many of the major gaming companies.
The good news, however, is that casinos have no problem with free cash flow on their balance sheets, and thus are able to easily cover the dividend for their investors.
Bernstein analyst Vitaly Umansky is optimistic on the future of gaming stocks. In a note to investors released earlier this month, the analyst outlined how downturns are common for the sector, and that a savvy investor could get in at the right time.
“Over the last five years, gaming stocks have gone through periods of significant underperformance, followed by significant outperformance,” wrote Umansky in his note. “The last six months have been exceptionally difficult for gaming stocks as Macau growth has begun to decelerate following nearly two years of strong growth and Las Vegas has seen unexpected near-term softness. However, the gaming space has shown, time and again, that if investors pick the right market, the right company, at the right time, outsized returns are possible.”
Moreover, the analyst states that fears over a stagnating Macau have been overblown, and led to the market valuations being unfairly penalized.
“The market has overly penalized quality operators with Macau exposure,” wrote the analyst. “While the near-term headwinds for 2019 growth are clear, the market has overly penalized valuations on overall China negativity.”
Umansky initiated coverage on Wynn and Las Vegas Sands with Outperform ratings and bullish price targets, while initiating coverage on MGM and Ceaser’s with Market Perform ratings.
With all these stocks essentially on sale due to overblown market headwinds and a cyclical industry, now may be the best time to buy. The kicker for any investor should be that all of these stocks offer dividends, which largely wont be impacted by Wall Street speculation. By investing in an undervalued dividend stock, investors are essentially being paid to wait. Almost unanimously, these stocks are favored to rise by at least ten percent over the next year, according to analysts.