Gaming Stocks Are Worth a Gamble in the Time of Trump

The run-up in the U.S. stock market since Donald Trump shocked the world and won the U.S. presidency is one for the history books.

Case in point, the Dow Jones Industrial Index is up about 3,000 points since Election Day, cresting the 21,000 mark on March 1, 2017 -- a record high. On a year-to-date basis, the Dow is up 5.4 percent.

But one slightly neglected sector on the outside looking in is gaming and gambling, a vexing turn of events given that Trump is a former casino operator, among his other business ventures.

Consider the industry benchmark VanEck Vectors Gaming exchange-traded fund (ticker: BJK), which is trading at $36 in mid-March and is up 4.7 percent on a year-to-date basis, but down 1.5 percent in the past 90 days. That's not going to send gaming investors to a cardiologist, but sector savants who were licking their chops over the prospect of a casino industry pricing blowout have to be disappointed.

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But there are always multiple options for an investor to consider before investing in the gaming industry, says Yale Bock, a portfolio manager on Covestor, an online investing company, and president of Y H & C Investments in Las Vegas.

"For instance, from a supply standpoint, the largest operators are IGT ( IGT) and Scientific Games ( SGMS)," Bock says "IGT supplies the slot machines and lottery terminals and is a giant, and Scientific Games is in the process of digesting some acquisitions, but seems to be well-positioned internationally."

On the hotel and resort side, there are also plenty of possibilities, Bock adds. "Locally here in Las Vegas, the largest strip players remain MGM ( MGM) and Caesars ( CZR). Las Vegas has enjoyed a nice rebound with 40 million visitors annually in recent years."

Given that Las Vegas is a great geographical entry point into the gaming industry, Bock advises focusing on the largest companies catering to locals. "Start with Red Rock Resorts ( RRR), owner of the Stations franchise. They recently bought the Palms, and Boyd gaming ( BYD), which recently digested the acquisition of the Cannery properties. Other possibilities include Penn [National] Gaming ( PENN) and Carl Icahn's Tropicana resort property," he says.

"Many of these stocks have had nice moves so the valuations are probably pretty fair or full," Brock adds.

Looking globally, the largest players are Las Vegas Sands Corp. ( LVS) and Wynn Resorts ( WYNN), both which are the biggest entities in Macau and have properties in Las Vegas, Bock says. "The biggest issue with these entities is discretionary spending, both in Asia and specifically China," he says. "China remains the largest feeder market to Macau, so both companies are tied to the perception of the roller coaster of the Chinese consumer and how the government restricts participation."

The Wynn properties keep coming up when you ask money managers about good gaming opportunities.

"WYNN is a wonderful global brand that is the premier name in gaming," says Trip Miller, managing partner at Gullane Capital Partners, a hedge fund in Memphis, Tennessee.

Miller says he likes the fact that CEO Steve Wynn has his family name on the brand, controls 21 percent of company shares and lives on the property in Las Vegas.

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"In a situation like with Wynn, if he makes a mistake, or does something wrong, he not only hurts us as shareholders, but he also hurts the brand and he hurts his own name," Miller says. "We like that kind of association. Everyone knows what Steve Wynn did with the Las Vegas market and it is a great global brand. When people think of premium high-end gaming, WYNN is the big player in that space. They also have more five-star, five-diamond awards at their resorts than any others in the world and that is a big differentiator for them.

"WYNN will also benefit from multiple domestic gaming projects coming online over the next 27 months, the U.S. consumer having more money to spend due to a stronger economy and individual tax cuts under a Trump White House, and a rebound in the Macau gaming market," Miller adds.

Pulling the lens back, there's at least one more game changer in the global gaming sector in 2017 -- a shift in consumer gambling habits.

"The increase in the popularity of gambling apps and social gambling are the major factors expected to propel the growth of the market during the 2017 to 2021 time period," says Ujjwal Doshi, a lead analyst and gaming industry specialist at London-based Technavio, in a recent report.

"Vendors are leveraging the growth in internet using population and increasing adoption of mobile devices to develop innovative social gambling games," Doshi says. "The number of people participating in social gambling is increasing because they are motivated to compete with friends and can interact with each other through games. Moreover, these gaming platforms offer user-friendly gameplay, and game tournaments."

In addition, the increasing adoption of the free-to-play model of social gaming across the globe is likely to drive the market growth through 2021. "The model does not generate revenue directly as it does not charge a participation fee," Doshi says in the report. "Instead, it charges for virtual goods that players purchase to access the advanced features of a game or to gain an edge over their competitors."

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Yes, there are myriad moving parts in the gaming sector right now, both in the U.S. and on a global basis. But if you believe in Lady Luck, if not serendipity, the combination of a Trump presidency, stronger consumer sentiment and some profitable, solidly managed industry companies, then casinos and gaming may not be such a wild bet after all.

Brian O'Connell is a contributing financial writer for U.S. News & World Report. A former Wall Street bond trader and the author of two best-selling books; "The 401k Millionaire" and "CNBC's Creating Wealth", he has 20 years experience covering business news and trends, particularly in the financial, technology, political and career management sectors. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, TheStreet.com, Yahoo Finance, CBS Marketwatch, and many more. Visit his web site at: https://brianoco.contently.com/. Or, visit this Amazon.com link for a list/review of some of his book titles. Reach out to him on LinkedIn.