Eight U.S. casino stocks poised for a rebound

Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.

What are we looking for?

U.S. casino and gambling stocks poised for a rebound.

These stocks have been hit hard over the past months. The Dow Jones U.S. Gambling Index is now down 11.4 per cent quarter-to-date and down 3.9 per cent in just the month of September. This week it was announced that Trump Entertainment Resorts would file for bankruptcy protection, with two of its Atlantic City casinos set to shut their doors this fall. Las Vegas Sands Corp. was also hit this month on news that revenue was off sharply at its flagship casino in Macau.

The screen

We will be using Recognia Strategy Builder to search for U.S. casino and gambling stocks with strong profits and reasonable valuations that may be set to bounce back.

We begin by setting a minimum market capitalization threshold of $100-million (U.S.) to focus on larger, more stable and established companies in the market. Next, we will look for companies whose valuations are reasonable as shown by their forward-looking price-earnings ratio. We will focus on companies with a forward P/E of less than 30.

Finally, in order to select stocks that still look fiscally healthy in the midst of difficult times in the industry, we will select only companies with a gross margin of 25 per cent or more. Gross margin is a measure of corporate profitability defined as the percentage of revenue left after paying all direct production expenses.

More about Recognia

Recognia is a global leader in quantitative and technical analysis. It is accessible by more than 20 million investors and traders worldwide through leading retail online brokers. Recognia covers 85 exchanges worldwide, and analyzes 65,000 instruments daily including stocks, indexes, ETFs, currencies and futures.

What did we find?

Las Vegas Sands Corp. has the highest market cap on our screen at more than $50-billion. Las Vegas Sands is a casino and resort operator with numerous high-end properties, including the Venetian and Palazzo hotels in Las Vegas, the Marina Bay Sands in Singapore and several casinos in Macau, including the Venetian Macao. Although struggling somewhat in Macau, the company is still very profitable, with a 38.7 per cent gross margin.

Bally Technologies is a manufacturer of slot machines and other gambling technologies based in Las Vegas. The company took in close to $1-billion in revenue in 2013 and has a 58.8 per cent gross margin, the second-highest on our screen. In August, Bally agreed to be acquired by Scientific Games for $3.3-billion.

Monarch Casino and Resort has the lowest P/E ratio on our screen at just 13.1. Monarch owns and operates two casinos in the western United States: the Atlantis Casino and Resort in Reno, Nev., and the Black Hawk Casino in Black Hawk, Colo.

Texas-based Multimedia Games Holding is a leading provider of video and reel spinning slot machines and other casino game systems. Though relatively small with a market cap of just $1-billion, the company is very profitable and has the highest gross margin on our screen at 58.9 per cent. On Sept. 8, it was announced the company would be acquired by Global Cash Access Holdings for $1.2-billion.

The investment ideas presented here are for information only. Investors should conduct further research before investing.