In this article, we discuss the 11 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.
Pixabay/Public Domain
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.
5. Churchill Downs, Inc. (NASDAQ:CHDN)
No of HFs: 28
Total Value of HF Holdings: $511 Million
CHDN is a horse racing complex located at Central Avenue in South Louisville. They are known for hosting the annual Kentucky Derby. Recently, the company announced Mike Anderson as their new president, general manager. Mike recently serves as vice president for operations and led the development and construction of more than $300 million in capital projects. Bill Mudd, president, and chief operating officer of Churchill Downs Inc., said in a news release
“Mike Anderson is a uniquely qualified leader to assume the role of President at Churchill Downs Racetrack having successfully and consistently delivered on company goals across multiple departments. Over its 146-year history, the racetrack has grown into an incredibly sophisticated and complex business organization, and Anderson is poised to lead it through continued growth and success.”
The top hedge fund holder of this stock is Paul Reeder and Edward Shapiro’s PAR Capital Management which had $167 million invested in the stock at the end of September. An insider 1,800 shares at around $77 in March 2020. The stock is up 168% since then.
4. MGM Resorts International (NYSE:MGM)
No of HFs: 41
Total Value of HF Holdings: $1.23 Billion
MGM is a global hospitality and entertainment company that owns national and international locations featuring best-in-class hotels and casinos. In August 2020, InterActiveCorp, the US media giant announced a 12% stake in MGM Resorts International for an aggregate of approximately $1 billion. IAC CEO Joey Levin said in announcing the deal
“MGM is a leader in gaming, hospitality, and leisure with a storied brand and an enviable market position. The current pandemic brought revenue (though not expenses) to a temporary halt, and required MGM to repurpose cash it had wisely stockpiled for share repurchases to instead defend the solvency of the company. The good news is, we believe MGM has enough cash and access to capital to make it to the other side competitively stronger.
When the world returns to normal, MGM will be just as capable post-pandemic as it was pre-pandemic in servicing visitors in over 35% of the Las Vegas Strip’s available rooms, plus eight regional properties across the US, two in Macau, and hopefully in Japan. The 34 million members of MGM’s loyalty program still have their M-life Rewards, and we’re confident that many are eager to return to the properties they love. And when Las Vegas fully re-opens – even if it must wait until a vaccine for that to occur – we expect it to roar back: a new NFL team, a new stadium, a drivable destination, and months of pent-up demand could drive a powerful resurgence.
But that’s not what originally drove us to MGM, nor in large part drove our final decision to invest. We have a history and much experience in online commerce. So we began our analysis with a focus on a small piece of MGM, a portion of its revenue so small that it rounds down to zero: its online gaming revenue. We’ve followed the online gaming space for a while, looking for an opportunity to enter, but we were generally unsatisfied with the landscape we saw. The regulations in this $450 billion global industry, with less than 10% U.S. online penetration, have required a physical presence and geographic boundaries in each state to operate the product consumers demanded – anathema to the borderless environment in which we’ve operated our businesses. To operate true sports betting and digital gaming, a provider is currently required to partner with a local casino operator. And while we believe that regulatory environments generally catch up with consumer demand, it’s taken quite a while in this category, so we found one of the leading players operating in 7 going on 11 states by the end of 2020: MGM, which pairs a strong physical presence and brand with talented online operators in a fast-growing joint venture in online gaming. Similar to Disney’s advantages over pure-play streaming companies with an iconic brand and multiple avenues to monetize the same intellectual property between streaming, theatrical releases, merchandise, and theme parks, we believe MGM also is an aspirational brand, which could be delivered with daily accessibility and offer gaming consumers (including the 34 million M-life Rewards members) a wider range of services, both physical and digital, than any competitor. And MGM, with its highly capable joint venture partner GVC, has only just barely begun to deliver these products.
…Turns out, MGM also has a $2.5 billion EBITDAR (a gaming industry metric designed to reflect profitability before taxes, capital expenses, and real estate expenses and simplify comparisons between those operators that own real estate and those that do not) operation domestically that comes alongside the opportunity in digital sports betting and table games, at a normalized free cash flow yield over 10%. This combination doesn’t exist in any growing internet opportunity.
As we looked further into MGM, we recognized a familiar sum-of-the-parts story with publicly-traded subsidiaries. MGM’s implied “stub” – the domestic business without the real estate – trades at an implied value of nearly zero. That’s not unlike IAC’s “stub” – which is perennially valued at zero (or less). When we saw the collection of well-run businesses (check), a sturdy balance sheet (check), and the undervalued “stub” after accounting for cash and publicly-traded securities (check), we realized that the MGM situation is remarkably similar to that of IAC.
…Over the next decade, free cash flow at MGM could be in excess of its current valuation, and we believe the business will have ample opportunities to invest that capital. If nothing else, of course, our ownership will steadily accrete up if MGM continues to use that free cash flow to shrink its capital base. Regardless of how MGM chooses to put its cash flow to work, the power of that cash flow doesn’t appear to be getting much value in the market, and we believe that those financial dynamics – on top of all the other positives – make this investment and its potential return every bit as worthy as other opportunities we may have to deploy our capital.”
The top hedge fund holder of this stock is Keith Meister’s Corvex Capital which had $490 million invested in the stock at the end of September. An insider recently purchased 111,198 shares at around $19 in August 2020. The stock is up 52% since then.
3. Draftkings, Inc. (NASDAQ:DKNG)
No of HFs: 43
Total Value of HF Holdings: $821 Million
In an article, Alger Mid Cap Focus mentioned that Investors responded favorably to DraftKings launching online sports betting in Illinois
“DraftKings is an online gaming operator. Its Daily Fantasy Sports (DFS) allows users to virtually draft teams of players from professional sports leagues and potentially earn a payout based on how well their teams compete with results driven by how athletes perform in real life. DraftKings Online Sports Betting (OSB) involves the company taking wagers or bets from customers on sporting events. DraftKings’ third offering. Online Casino, involves customers betting real money when playing casino games like slots and blackjack online. Investors’ concerns that DraftKings’ revenues could be hurt by the pandemic suspending sporting events have been unfounded with professional football, basketball, baseball, hockey and college football continuing without significant disruption, which has supported the performance of DraftKings’ shares. Additionally, DraftKings has entered a marketing deal with ESPN. which could potentially lower the gaming company’s customer acquisition costs as well as shut out competitors from using the channel for marketing. A record high level of sports betting in New Jersey during August, strong monthly results for online gaming in the same state and Pennsylvania results also supported the performance of DraftKings shares. Investors also responded favorably to DraftKings launching online sports betting in Illinois.”
2. PENN National Gaming (NASDAQ:PENN)
No of HFs: 45
Total Value of HF Holdings: $1.18 Billion
The stock was mentioned as one of the Top 10 Sin Stocks to Buy Now. The top hedge fund holder of this stock is Alex Sacerdote’s Whale Rock Capital Management which had $421 million invested in the stock at the end of September. An insider purchased 27,777 shares at around $18 in May 2020. The stock is up 450% since then.
In an article, Alger Mid Cap Focus mentioned a few of their comments on the stock.
“Penn National operates 40 properties (casinos and racetracks) across 20 states. In February. Penn National purchased a 36% interest in Barstool Sports, an online sports media company with 66 million monthly active users. Penn National is using Barstool Sports as the brand of its digital strategy and retains 100% of the sports betting and online casino (iGaming) proceeds in the relationship. Traditional brick¬and-mortar casino gambling in the U.S. is not a growth industry: however, two unique growth areas exist for casino operators: online sports betting (OSB) and iGaming. More states are considering legalization of OSB and iGaming due to Covid¬19-related budget shortfalls, as gambling can raise substantial tax revenue. Importantly, data shows that sports betting and online casinos do not cannibalize brick-and-mortar casino revenues. Additionally, gaming companies must have a physical presence within the states where they seek to have online gambling and sports betting legalized, so Penn National’s brick-and-mortar facilities give the company an advantage in this area. Shares of Penn National performed strongly during the third quarter in response to the company’s brick-and-mortar properties recently generating higher margins compared to pre-Covid-19 levels. a result of the company cutting costs and increased customer spending. Investors also responded favorably to Barstool’s September launch of its Sportsbook app in Pennsylvania. Additionally. sports betting and online gaming levels have reached record highs in numerous states.”
1. Caesars Entertainment Inc. (NASDAQ:CZR)
No of HFs: 74
Total Value of HF Holdings: $1.85 Billion
The best casino and betting stock to buy now is CZR. The company was mentioned in the Top 10 Stocks Billionaire Daniel Loeb Just Bought. They are known as a gaming and hospitality company that owns and operates gaming facilities such as Paris Las Vegas, Planet Hollywood, Harrah’s Las Vegas, and more gaming companies.
Recently, the company announced the closing of the sale of Eldorado Resort Casino Shreveport to Bally’s Corporation for $140 million in net proceeds, subject to customary working capital adjustment. Tom Reeg, CEO of Caesars Entertainment, Inc said,
“The completion of the sale of Eldorado Resort Casino Shreveport satisfies the Federal Trade Commission request to divest the asset in connection with the Caesars-Eldorado transaction which closed earlier this year. Since our acquisition of the property fifteen years ago, our Team Members’ passion and commitment have driven our success in Shreveport. We wish all of them continued success under Bally’s ownership.”
Please also see Top 10 Best Sin Stocks to Buy Now and 10 Extreme Dividend Stocks with Huge Upside.
Follow Insider Monkey on Twitter
Suggested Articles:
- Top 10 Best Sin Stocks to Buy Now
- 10 Best Hydrogen Fuel Cell Stocks to Buy Now
- 10 Best Packaging Stocks to Buy Now
Disclosure: None. 11 Best Casino and Betting Stocks To Buy Now is originally published at Insider Monkey.
