Gambling stocks' luck hasn't run out

July 06, 1994|By Andrew Leckey | Andrew Leckey,Tribune Media Services

You win some, you lose some.

Investors in gaming stocks hit the jackpot last year when the group jumped more than 80 percent in value. This year that luck soured, the stocks tumbling more than 35 percent.

Besides investors being squeezed in a troubled stock market, there are other causes behind this bad roll of the dice. No new jurisdictions around the country have legalized casino gambling this year, and progress has stalled on several that already have been approved. Growth requires legislative decisions, which are unpredictable.

There is fear of saturation in some gaming markets, exemplified by the 26 casinos in the $1.5 billion Mississippi gambling industry. Keep in mind that even in Las Vegas 40 of the 60 casinos are losing money. There also is backlash from skeptics nationwide who contend that claims of economic gains for communities from gambling are overblown, with Atlantic City cited as a prime example.

But don't cash in your chips yet. Stock investors who maintain a poker face and keep on playing just might find bargain-priced opportunities. Future growth hasn't been figured into current low prices.

"This is a good business undergoing growing pains, and opportunities in new jurisdictions should dwarf results of the last two years," said Steven Eisenberg, an analyst with Oppenheimer & Co. "Returns from casino gambling in Mississippi are so strong that they're now cutting taxes there, and casinos boost employment wherever they open."

No longer can you buy just any gaming stock. Choose franchise players that are low-cost, high-volume producers, experts counsel.

"Not everyone who puts up a casino will get rich, and some markets seem oversupplied, yet the long-term case for these stocks remains good," said Michael Mueller, analyst with Montgomery Securities. "Another four jurisdictions will be legalizing casino gambling in the fairly near future."

Invest cautiously with only a portion of your money. "Make a laundry list of gaming stocks and buy between July and September, before the big mutual funds start buying them," advised James Murren, analyst with C. J. Lawrence. "The market for gaming stocks will be sleeping the next couple of months, but 1995 will be phenomenal."

Gaming stocks traditionally do well long-term, but are quirky short-term. "Sentiment is negative because investors reassessed the number of emerging gaming markets," explained Bruce Turner, analyst with Salomon Brothers. "I'd be patient and prepared to accept volatility."

There are investment opportunities in gaming companies with established properties and new ideas.

Inexpensive stock of Promus Cos., a strong company ahead of everyone in identifying new markets, is recommended by Eisenberg, Murren and Turner. It has options on land in dozens of locations and boasts the Harrah's brand name. Besides four casino-hotels in Nevada, it owns casino riverboats in Illinois, Louisiana, Missouri and Tennessee that pulled in $83 million in the last quarter.

Mirage Resorts, owner of attractive casino complexes in Nevada and likely to win big in new jurisdictions that opt for one large casino, is suggested by Mueller, Murren and Turner. It owns the Mirage, Treasure Island, Golden Nugget and Nevada Club. Opened last October, Treasure Island posted $88 million in revenues in the first quarter. The company will develop the old Dunes site with a property aimed at the low end of the gaming scale.

Primadonna Resorts, setting records each year thanks to its dominant position in Stateline, Nev., a town Californians pass through on their way to Las Vegas, is a selection of Eisenberg and Mueller. As an established Nevada operation now adding a third facility, Primadonna could introduce its consumer-friendly concept to other jurisdictions.

Caesars World, with strong management and ability to draw tourists, is a pick of Eisenberg and Murren. It owns and operates Caesars Palace, Caesars Tahoe and Caesars Atlantic City. Expansion of Caesars Palace will include a large addition to the ++ Forum shopping arcade, paid for by an outside developer. The company joined a consortium with Hilton and Circus Circus to open a casino complex in Windsor, Ontario.

In addition, International Gaming Technology, maker of casino gambling machines, is suggested by Eisenberg, while Rio Hotel & Casino, whose Las Vegas business is booming, is a Mueller favorite.

Hilton Hotels, which derives 60 percent of revenues from gaming, is a Murren choice, as is Circus Circus Enterprises, with its popular Excalibur and Luxor properties. President Riverboat Casinos is a speculative Mueller pick that would prosper if legislation legalizing slot machines is passed in Missouri.

Among potential takeovers are smaller firms Station Casinos and Argosy Gaming, both with great locations, options on land and new market opportunities, concluded Murren.

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