In this article, we discuss the 11 best casino and betting stocks to buy now. If you are in a hurry, you can skip and click to read the 5 best casino and betting stocks to buy now.
Our website is all about identifying and following smart investors. One of these smart investors is IAC’s Barry Diller. Diller has been buying undervalued assets/websites, nurturing and growing them, spinning out them at large valuations, and delivering huge returns to IAC’s shareholders over the years. This August IAC spun out dating website Match.com (MTCH) and invested $1 billion in MGM Resorts International. Here is what Diller said at the time in a press release:
“Over the last few months we’ve accumulated a 12% interest in MGM Resorts International (“MGM”) for an aggregate of approximately $1 billion. Investors reading that prior sentence may be surprised by some, or quite possibly all, of its components. First, we accumulated a large minority position in a public company, which is not our usual methodology. Second, the securities we purchased are common equity securities, the exact same securities that any investor with exactly $19 could buy and sell any day in the market. Third, we bought securities in a business that has relatively little to do with the Internet today. Fourth, we invested a portion of our cash in a new direction for IAC. The answer to all four of those concerns is that we believe MGM presented a “once in a decade” opportunity for IAC to own a meaningful piece of a preeminent brand in a large category with great potential to move online. IAC has always been opportunistic with its capital, and if ever there was a time, this moment is unique. We believe we can generate compelling returns for our shareholders and hope our expertise will be additive to MGM’s opportunities, but even if we never advance our involvement from here, the value was too compelling to ignore. Having taken this step, we have a very long-term view of this investment and will be open to all the opportunities it presents along the way.”
If you are concerned about investing in casino/gambling stocks, we believe a safer way to gain some exposure is by buying IAC/Interactive (IAC) shares. You may be a little bit late as IAC shares were trading at around $120 back in August and presented a great opportunity. Today, IAC shares change hands at $198, but we believe it still isn’t too late to buy IAC. You will most likely outperform the market over the next 5 years by betting on Barry Diller. Alternatively, you can invest in one of the 11 best casino and betting stocks that we highlighted in this article as the industry is in the middle of a huge transformation.
Based on a study by Casino Org, the world gambling statistics showed that around 1.6 billion people worldwide gamble. In the United States, there are more than 1,000 listed active casinos. According to the Nevada Gaming Control Board, 441 casinos are located in the state of Nevada alone. In 1931, gambling was legalized throughout the state of Nevada and in 2020, Louisiana was added to the states in which casino-style gambling is legal statewide. In an article, we mentioned the Top 10 Online Casino Companies to Watch.
The impact of COVID-19 was felt by almost every sector in the world. The casino and betting industry was not immune to the economic downturn. Many brick and mortar casinos experienced a rapid decline in revenue as a result of the lockdown in response to the health crisis. According to Bill Miller, President and CEO of the American Gaming Association (AGA) the pandemic has been the most difficult economic challenge to the gaming industry.
“COVID-19 has undoubtedly posed the most difficult economic challenge the gaming industry has ever faced. Yet, gaming’s record popularity prior to COVID-19, as well our resilience in the midst of such adversity, is evidence of the industry’s foundation for continued success as we emerge from the pandemic.”
On June 4, the green light for Las Vegas casinos was given. This resulted in a major rebound for casino stocks. According to Forbes, Las Vegas Sands rose 6.5%, Wynn 8.5%, and MGM 11% since they started operations.
On the other hand, as the enforced lockdown was in place, the world of online gambling began to thrive. As the pandemic limited physical interaction, the online casino industry saw a good business opportunity. According to Globe News Wire, the online gambling market size is expected to grow from $58.96 billion in 2019 to $92.86 billion in 2023 at a rate of 12.0%. The market is expected to then grow to $113.12 billion in 2025 at a CAGR of 10.4%.
President Joe Biden has been vocal about the online gambling industry. Evidently, he does not support the Justice Departments’ decision to reassert provisions of the 1961 Wire Act. In a recent report by CDC Gaming, Biden mentioned that he does not support adding unnecessary restrictions to the gaming industry and he believes states and federal authorities should cooperate to ensure gambling is safe, fair, and corruption-free.
In order to identify the 11 best casino and betting stocks to buy now, we started with the top holdings from BETZ Sports Betting ETF and we were able to narrow down our list to 11 stocks by using our hedge fund sentiment scores.
Our in-house analysis shows that we can use the sentiment information gathered from the hedge fund filings to classify in advance a select group of stocks that can beat the S&P 500 index by double digits annually on average. For instance, the portfolio of our monthly newsletter’s stock picks has beaten the market by over 88 percentage points since March 2017 (see details here). Some of the portfolio holdings of our monthly newsletter have been shared publicly too. In October, we shared this real estate stock and since then, it’s been up nearly 50 percent.
Based on our hedge fund sentiment data, we now present to you the 11 best casino and betting stocks to buy now based on the stock picks of 800+ hedge funds tracked by Insider Monkey:
11. Gan LTD (NASDAQ:GAN)
No of HFs: 7
Total Value of HF Holdings: $22 Million
We start the list of the 11 best casino and betting stocks to buy now with GAN. One of the leading suppliers for internet gambling software-as-a-service solutions providers. In an article, Wasatch Micro Cap Fund mentioned that the stock is well-positioned to benefit future growth in online gambling.
“Another weak stock in the Fund was GAN Ltd. (GAN). Based in the U.K., the company provides Software-as-a-Service (SaaS) solutions for online casino gaming and online sports betting. Shares of GAN tumbled in August after the company announced that a large customer, FanDuel, had deployed its own proprietary digital wallet. The news—which meant that GAN would no longer be providing the digital wallet for FanDuel Sportsbook—disappointed investors, who had sent GAN’s stock soaring during the first half of 2020 on hopes that the return of professional sports during the pandemic would substantially boost online gambling. While the loss of the FanDuel project was disappointing, GAN remains profitable on a top-line basis and we believe it is well positioned to benefit from future growth in online gambling.”
10. Qiwi PLC (NASDAQ:QIWI)
No of HFs: 9
Total Value of HF Holdings: $48 Million
QIWI ranks 10th in our list of the 11 best casino and betting stocks to buy now. The company is known for its electronic online paying systems. The platform enables users payment services physically, online, and through mobile channels. Horos Asset Management mentioned in their Q3 2020 investor letter,
“We trimmed our exposure to Qiwi after outperforming the other holdings that make up Horos Value Internacional. The Russian digital financial services company benefited during the period from the announcement of the sale of its consumer financing project, Sovest. As we have pointed out in the past, it was clear that the new initiatives launched by the company in recent years were having a negative impact on the investor community’s perception of Qiwi, as the real cash flow generation capacity of the payments business was being concealed and these projects were not delivering immediate results. In the end, Qiwi has been reorganizing, selling or liquidating these lines of business, uncovering its strong cash generation capacity and regaining some of the investors’ lost confidence.”
9. DMY Technology Group, Inc. II (NYSE:DMYD)
No of HFs: 22
Total Value of HF Holdings: $143 Million
DMYD ranks 9th in our list of the 11 best casino and betting stocks to buy now. DMYD is a blank check company that intends asset acquisition with one or more businesses. Recently the company entered into a definitive business combination agreement with Genius Sports Group Limited to combine. CEO of Genius Sports Group said,
“Genius Sports Group created the market for official data across all tiers of sports, helping fuel our sportsbook partners’ ever-increasing range of products. This transaction will help us continue to expand and strengthen our position as a nexus of the global sports, betting and media ecosystem.”
8. Scientific Games Corporation (NASDQ:SGMS)
No of HFs: 25
Total Value of HF Holdings: $990 Million
The top hedge fund holder of this stock is Debra Fine’s Fine Capital Partners which had $318 million invested in the stock at the end of September. An insider purchased 5,000 shares at around $10 in March 2020. The stock is up 340% since then. In an article, Greenlight Capital mentioned SGMS in their Q2 2019 investor letter
“SGMS is a gaming equipment company specializing in slot machines and instant lottery products. The company has developed thousands of games for its core business and since 2012 has monetized them via web- and mobile-based social gaming platforms. In May, SGMS publicly listed SciPlay Corporation (SCPL), its online social gaming business. Given SCPL’s access to SGMS’s content, its R&D expenses are generally lower than – and its margins higher than – its peers’. While consensus expects SCPL’s EPS to grow at an annual rate of 23% through 2022, the shares trade at only 12x the 2020 estimate. After the IPO, SGMS continues to own 82% of SCPL, which accounted for 78% of its market capitalization at quarter-end and could be spun-off in the future. At our average entry price, SGMS’s core business trades at less than 5x free cash flow. SGMS ended the quarter at $19.82.”
7. International Game Technology (NYSE:IGT)
No of HFs: 28
Total Value of HF Holdings: $139 Million
IGT ranks 7th in our list of the 11 best casino and betting stocks to buy now. In an article, Mittleman Brothers mentioned that they believe the stock will experience full recovery that will happen much faster than analyst consensus expectations
“International Game Technology (IGT), which rose by 25% on reopening optimism, was the second best performer in Q3. Frustratingly, it just lost all of those gains in late October on resurging COVID-19 cases and renewed lockdowns in Italy (which account for 35% of its sales). IGT does slot machines, casino management systems, lottery games and systems (78% market share in the U.S. state lotteries) and (increasingly) sports betting. Under normal conditions, and once COVID-19 subsides, these businesses generate a substantial and largely recurring stream of free cash flow, much of which was paid out as dividends pre-pandemic.
MIM believes a full recovery will happen much faster than analyst consensus expectations that imply a very low multiple of both EBITDA and FCF for such a high margin, stable and growing group of businesses. The pessimism due to IGT’s Italy exposure is vastly overdone at current valuations. At least some analysts acknowledge the prospect of much higher valuation for IGT, with “bull case” views of fair value in the mid to upper $20s (MIM’s target is $29, more than triple the current price of $8.68). MIM’s $29 price target implies 9x EBITDA and 15x FCF of $400M.
On 14 September 2020 an Australian hedge fund, Caledonia, paid a 47% premium to the market price of $19 to buy Ron Perelman’s controlling stake in Scientific Games (SGMS). SGMS rallied further into the mid-$30s after the news as brokerage firms scrambled to raise their price targets. Scientific Games is IGT’s primary competitor in lotteries, slot machines and sports betting. IGT also has a large controlling shareholder in his late 70s, the Italian Marco Drago of private equity firm de Agostini Spa, which owns about 50% of IGT. Caledonia appears to have paid 9.4x EBITDA at $28 for Perelman’s 35% stake in SGMS ($928M to Perelman).”
6. Boyd Gaming Corporation (NYSE:BYD)
No of HFs: 28
Total Value of HF Holdings: $254 Million
BYD ranks 6th in our list of the 11 best casino and betting stocks to buy now. BYD owns and operates several gaming properties. During the third quarter of 2020, the company reported a revenue of $652.2 million, compared to $819.6 million in the third quarter of 2019.
The top hedge fund holder of this stock is Paul Reeder and Edward Shapiro’s PAR Capital Management which had $52 million invested in the stock at the end of September. An insider recently purchased 100,000 shares at around $16 in May 2020. The stock is up 200% since then.
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Disclosure: None. 11 Best Casino and Betting Stocks To Buy Now is originally published at Insider Monkey.