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Around the nation, casinos and sportsbooks continue to experience strong financial results. Despite the haphazard reopening and recovery experienced in 2021, casinos just experienced the industry’s best quarter ever.
Yes, better than in the years of Frank Sinatra touring Las Vegas.
Better than in the years before the internet, when you had to make a bet in the casino.
Better than in 2019, before the COVID-19 crisis.
According to the American Gaming Association, U.S. commercial casinos pulled in about $14 billion in the third quarter of 2021. So let’s dive into what’s driving this impressive recovery and how investors should trade it moving forward.
Returning to the TablesThe return of widespread air travel and the increased legalization of gambling across various states has made more Americans comfortable with visiting casinos. But the real driver of this growth is the uptick in online and sports gambling.
Following the 2018 Supreme Court decision that struck down state bans on sports betting, the legalization movement has driven a remarkable surge in revenue. More states now have legalized sports gambling than they have recreational cannabis. And some experts predict that every state except Utah (due to religious objections) will legalize sports betting by 2030.
Combining sports gambling with online platforms has driven a surge of interest from professional and amateur gamblers alike. As I’ve noted, the combination of casinos, sportsbooks, and online media platforms is on pace to generate an expected $30 billion in additional value for these companies by 2030, according to Macquarie Research.
Overall, the numbers are solid for the sector. Las Vegas Strip casinos experienced an all-time-high gambling revenue haul of $2.06 billion for the third quarter in 2021. Internet gambling hit a record $938.6 million.
And the combination of internet gambling and sports betting drove about $5.36 billion in revenue. For reference, that is about a 200% jump from the previous fiscal year.
And keep in mind, the casinos are still very good at what they do — taking those gamblers’ money.
The AGA said that casinos have won about $39 billion this year.
Looking forward, investors in this industry can expect a wealth of new revenue as more legalization transpires and more Americans adopt digital gambling platforms.
Let’s talk about one stock to buy, one to watch, and one to avoid in the gamlbing space.
One to BuyInvestors looking to take advantage of strong physical gambling foot traffic should consider Gaming and Leisure Properties (GLPI). This real estate investment trust (REIT) generates income by renting physical casino space to gaming operators. GLPI owns 52 casino properties across 17 states and counts companies like Penn National Gaming, Caesars Entertainment, and Boyd Gaming Corporation among its tenants.
The company has experienced 100% occupancy rates since its inception, and it has never had a client miss a payment. Best of all, the fact that the company is a REIT allows it to pass profits directly to its shareholders and bypass corporate taxation. This enables the company to provide a very attractive dividend of 5.5%. If you’re an income investor, it’s hard to top the reliability of casino rent payments.
Right now, GLPI sits in the Green Zone on TradeSmith Finance and remains in strong upward momentum.
One to WatchNext, investors will want to put DraftKings (DKNG) on their watchlist for the months ahead. Over the last month, the company fell into the Yellow Zone on TradeSmith Finance, and it currently sits in side-trend momentum.
DraftKings started as a fantasy sports website but has transitioned into a leading platform for online sports gambling. Unfortunately, the stock has been in a bit of a funk; a lack of major events on the calendar has led to an underwhelming quarter for sports betting. But the fourth quarter should pick up with the full slate of NFL games, the return of professional basketball and hockey, and a growing slate of mixed martial arts and boxing matches.
The other reason to watch the stock is DraftKings’ recent purchase of Golden Nugget Hotels and Casinos. This deal could add 10% annually to the company’s bottom line and reduce costs by several hundred million. So keep an eye on this stock, and if it moves into the Green Zone, consider it an excellent buying opportunity.
One to AvoidFinally, we have Wynn Resorts (WYNN). The iconic company has enjoyed a recent rally from near-term lows under $80 in September. But the company’s stock is still off about 22.6% in the last six months, and questions loom about its Chinese properties in 2022.
Wynn Resorts generates more than 80% of its revenue from its casinos in Macau, China. However, the Chinese government’s ongoing crackdown on technology companies and social standards has many investors worried about Wynn’s medium-term future.
In addition, the company must renegotiate its licenses that are set to expire in mid-2022. As a result, Wynn could see its licenses revoked or severe social concessions that impact its revenue, in the worst-case scenario.
Right now, Wynn Resorts sits in the Red Zone on TradeSmith Finance and remains in a firmly negative momentum trend. As a result, investors are best to steer clear and consider our other alternatives.
Looking forward, there appear to be blue skies ahead for U.S.-focused casino operators. We’ll continue to talk about this trend as new information emerges.