But even the best casinos stocks can be volatile, and COVID-induced closures and restrictions ravaged the industry.
Are casino stocks a good buy? This article will explain the pros and cons of investing in the ultimate sin stocks.
Overview of Casino Stocks
Gambling has always been a touchy subject in America. Often associated with less-than-savory activity, gambling is only legal statewide in two places: Nevada and Louisiana. However, every state but Utah allows some form of gambling, whether a state lottery, casino or online sports betting.
The questionable regulatory status of gambling can create some confusing situations. For example, some states don't allow casino-style gaming but allow betting at horse racing tracks. Other states allow casinos but restrict sports betting. In New Jersey, you can bet on a horse race at age 18 but are allowed on the casino floor once you're 21. Confused yet?
Investors looking for the top casino stocks must stay on top of state laws and regulations.
The proliferation of online gambling has created another set of headaches for regulators. In the mid-2000s, poker games like Texas Hold 'Em began scoring big ratings on ESPN and other cable channels, leading to an explosion in online poker sites. However, online gambling isn't regulated the same way that physical gambling is at casinos and racetracks. Many online poker sites were offshore books with questionable legal status, and they shut U.S. customers out following the implementation of laws like the 2006 Unlawful Internet Gambling Enforcement Act.
Online gambling remains restricted in many areas, although the legalization of sports betting in 2018 has begun softening the stances of many federal and state regulators. One of the reasons for excitement about casino stocks is this attitude shift from both the public and regulators, which could allow operations to expand into states and territories that were previously inaccessible.
Ways to Invest in Casino Stocks
Investors looking for casino stocks to buy can find shares traded on major exchanges like the NYSE and NASDAQ, including companies with international operations. Stocks in this sector can be broken down based on the following criteria.
Domestic Casino Operators
You'll likely recognize the names of many of the publicly-traded domestic casino stocks. These companies offer physical gambling locations, online casinos and sportsbooks in various states nationwide. If you've watched a single sporting event in the last few years, you're likely familiar with companies like DraftKings Inc. (NASDAQ: DKNG), which started as a daily fantasy sports site but expanded to online sports betting, slots and table games in 2018.
DraftKings currently operates in 18 states but has no physical locations. Caesar's Entertainment Inc. (NASDAQ: CZR) is a domestic operator with physical locations in Las Vegas, Atlantic City and other U.S. cities, plus online sports betting and casino games.
International Casino Operators
Casinos are also big business aboard, and nowhere do the lights shine brighter than the city of Macau, the special territory located just a short trip from Hong Kong off the coast of China. Macau is commonly known as the "Las Vegas of Asia." Many large publicly-traded companies operate casinos there. Las Vegas Sands Corp. (NYSE: LVS) has completely shut down U.S. venues and now operates solely in Macau and Singapore. Melco Resorts and Entertainment Ltd. (NASDAQ: MLCO) has several large casinos in Asia. Other operators like Wynn Resorts Ltd. (NASDAQ: WYNN) and MGM Resorts International (NYSE: MGM) have physical casinos in Macau, Las Vegas and Atlantic City.
Gaming Technology and Product Makers
Many companies that supply casinos and sportsbooks are also publicly traded. For example, Light and Wonder Inc. (NASDAQ: LNW) makes gaming systems, technology and equipment for physical casinos and online gaming sites. International Game Technology PLC (NYSE: IGT) is a London-based company providing lottery systems and online wagering technology. Also on the technology side is Genius Sports Ltd. (NYSE: GENI), which collects data on gambling and sports betting and provides solutions for online sportsbooks and casinos.
Horse Tracks
One of the most celebrated gambling holidays is the Kentucky Derby, held annually on the first Saturday in May at Churchill Downs in Louisville. Believe it or not, Churchill Downs Inc. (NASDAQ: CHDN) is a public-traded entity that runs racing competitions at multiple tracks and offers online betting and casino games at various locations. Barstool Sports' parent company Penn Entertainment Inc. (NASDAQ: PENN), owns or manages tracks in Kansas, Texas, New Jersey, Pennsylvania and Illinois and Bally's Corp. (NYSE: BALY) operates a track in Colorado.
Casino and Gambling ETFs
If you need help deciding which casino stocks to buy, consider buying into the sector through exchange-traded funds (ETFs). The Roundhill Sports Betting and iGaming ETF (NYSE: BETZ) holds stocks of online sportsbooks, physical casinos and gaming systems developers. Another option is the iBet Sports Betting and Gaming ETF (NYSE: IBET), launched in 2021 and holds both casino and online sports betting stocks.
How to Invest in Casino Stocks
Looking to add casino stocks to your portfolio? Here's a guide to investing in the gambling industry.
Step 1: Determine the type of exposure you want.
Are you looking to invest in casinos based in the United States only? What about companies that operate physical locations versus online table games and sportsbooks? You'll need to decide which areas of the industry to invest in and which areas to avoid. Or you could go the ETF route and get broad exposure to the entire sector.
Step 2: Research stocks and build an investment plan.
Constructing an investment plan is your next step. You'll need to perform due diligence on the stocks and ETFs that fit your investing criteria and decide when and how to buy them. An investment blueprint can set groundlines for your positions and prevent emotional trading. Review the companies you want to purchase and ensure they have solid balance sheets, good management and a plan for future growth.
Step 3: Determine how much capital you can put into a casino investment.
Putting too much capital into a single investment or stock can be a recipe for disaster. So before buying any casino stocks, figure out how much capital to devote to your investment. Consider your other investments and personal risk tolerance when deciding on the amount of capital to put toward these companies.
Step 4: Find an entry point and purchase shares.
Once you've got a plan of attack, look for good spots to enter your trade and build your positions. Most casino stocks trade on the NYSE and NASDAQ, so they won't be hard to find. If you're trading for short-term purposes, using technical analysis can be a good way to get the best possible purchase price. Concepts like support and resistance are useful when searching for ideal entry points, so be sure to familiarize yourself with these trading techniques.
Step 5: Monitor your investments and buy or sell based on your parameters.
One of the benefits of buying broad-market index funds is that when you buy the whole market, you don't need to keep track of individual stock prices. But when buying shares of a particular industry or asset class, especially those as volatile as casino stocks, you'll need to watch your investments constantly. Stick to the goals of your investment plan and sell shares when your profit goals are reached (or if your losses exceed the limit you devised in the plan).
Pros and Cons of Investing in Casino Stocks
Casino stocks have benefits and drawbacks investors should be aware of before purchasing any shares. Here are a few thoughts to keep in mind when building your portfolio:
Pros
The benefits of investing in casino stocks include the following:
- Growing market: The 2018 legalization of sports betting set off an arms race among new entrants and legacy casino operators to access a growing market. U.S. commercial gambling revenue topped $60 billion in 2022, setting a new record for the industry.
- Softening legal stance: One of the reasons for the industry's explosive growth is the removal of the stigma regarding gambling. States are opening their arms to casinos, wagering and sports betting in ways not seen in a century, and while regulatory headwinds remain, the outlook from a legal standpoint is bright.
Cons
On the other hand, it's still worth considering these downsides:
- Headache regulations: Each state has its own rules and regulations regarding lotteries, casinos and sports betting, which creates many problems for operators seeking to expand into new jurisdictions. Mindsets might change, but the industry will always cut through red tape at the state and federal levels.
- Changing customer preferences: Physical casinos are losing steam as customers frequently can access table games like blackjack, poker, roulette and craps from their mobile phones. Atlantic City has seen many casinos like Revel and the Taj Mahal close in recent years, with others pleading for tax support to prevent shutdowns.
- Morality concerns: Casino stocks certainly won't appear in any ESG funds. Betting is a divisive topic, and gambling addiction is frequent and devastating. Additionally, animal rights activists have long targeted horse racing for the treatment horses receive during training and races.
Future of Casino Stocks
Optimism is the word for the future of casino stocks. Now that COVID-19 restrictions have faded, casinos have resumed operating as normal, and gambling laws have become more friendly as states legalize sports betting and allow more physical casinos to be built. You no longer have to fly to Las Vegas or Atlantic City to sit at a blackjack table. Companies that can leverage these trends and understand the new regulatory framework will have the most success.
Betting Big Can Have Mixed Results
The casino industry is excited to bring new gambling ventures to the public as regulations become less restrictive, but a bright future doesn't mean a straight path upward. Casino stocks will inevitably have ups and downs over the next few years. Changing customer trends will force many casino operators to reevaluate their business models, and current locations in Atlantic City will remain under pressure. You may find it tougher to pick winners in this sector than horses at the racetrack, so research and risk tolerance are important factors to consider when deciding which casino stocks to buy.
FAQs
Here are a few frequently asked questions from investors looking for the best casino stocks:
Which casino stock is best?
The best casino stocks depend on your goals and risk tolerance as an investor. An ETF is likely the safest course of action if you want broad exposure. But some companies are better managed than others, so quality research could reveal the outperformers.
Can you buy shares of a casino?
Many casinos are owned or managed by publicly-traded companies which trade on the NYSE and NASDAQ. You can't own shares of a particular casino, but you can invest in the companies that run them.
What are the top three gambling stocks?
Picking the top three gambling stocks depends on your point of view and goals as an investor. Consider your investment criteria and decide which factors matter most in your stock research.
