As recently as a year ago, investors in gambling stocks were still avoiding American-exposed gaming companies like the plague. Las Vegas was hit hard by the financial crisis, and many investors turned their attention to Macau, the new top worldwide gambling destination off the coast of mainland China.
Tides Turn In Macau
Names with heavy exposure to Macau, such as Las Vegas Sands Corp. LVS, Wynn Resorts, Limited WYNN and Melco Crown Entertainment Ltd (ADR) MPEL were the trendy names to own in the space. However, Chinese economic weakness, a crackdown on corruption and a major falloff in Macau gaming revenue has left the Macau stocks hurting in 2014, and there's no immediate end in sight.
U.S. Recovers
Across the Pacific in the U.S., the economy is booming. Factors such as rising employment rates and low gas prices have consumers enjoying more disposable income than they have in past years. That leaves the four largest pure-play American gaming companies in a position to capitalize on market conditions in 2015.
Shares of Isle of Capri Casinos ISLE, Penn National Gaming, Inc PENN, Pinnacle Entertainment, Inc PNK and Boyd Gaming Corporation BYD have all outperformed their larger, Macau-exposed counterparts in 2014.
The Bearish Case Against U.S. Gaming
Fitch was bearish on the U.S. regional casino operators back in July. Fitch warned of secular changes in the American market that would make it tough on casino operators.
“Notable factors include saturation across regional markets; stagnant wages among the lower tier players, reprioritization of disposable income; proliferation of online/social gaming; potentially lower propensity to gamble among younger generations; and lowered preparedness for retirement by baby boomers.”
Disclosure: the author owns shares of Melco Crown Entertainment.
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