A year to remember—and never to be repeated
by Alan Woinski
Each December for the past 20 years our company Gaming USA Corporation releases our annual Gaming Sector…Yesterday, Today and Tomorrow report, complete with what we call a Model Portfolio of gaming stocks for the coming year. In the 20 years of publishing this report, we have outperformed every stock index you can find, having only two down years. (To satisfy our lawyers we must say: past performance is not an indication of future results.)
Those of you who ordered the report late last year or early this year probably are saying it was the best $29.95 ever spent but we doubt you were saying that when you read through it. In fact, you probably were thinking we lost our minds when we said the gaming sector’s growth days were over but investors won’t care in 2013. We dubbed 2013 “The Year of the Transaction” and said investors would be attracted to companies for all the wrong reasons, what they will do for them in terms of dividends, share repurchases, acquisitions, spin offs and for things like online gaming that have no chance of making companies money in the near term. Remember that we made up this portfolio without knowing what was going to happen with Congress and the President and tax rates, Obamacare, the Fiscal Cliff or what the economy would be like.
In 20 years we never once suggested to investors that fundamentals did not matter but that was exactly what the theme was in 2013, not just in gaming stocks but the entire stock market. The action in gaming stocks in December will determine if 2013 is the best year ever for gaming stocks but as of the middle of November, our 2013 Model Portfolio is up 63%, the highest return ever for our annual list of gaming stocks.
A consumer looks at the current environment and knows that more casinos mean more marketing to customers, which is good for them. An investor usually views that as a negative as more marketing means lower margins and less on the earnings front which is exactly what happened in the US gaming market in 2013. Investors did not care, sending up the share prices of regional casino stocks Penn National Gaming (PENN), Pinnacle Entertainment (PNK) and Boyd Gaming (BYD) to double digit gains. PENN rallied as they were completing a spin-off of the first Gaming Real Estate Investment Trust—Gaming and Leisure Properties (GLPI). PNK rallied as they were completing a merger with Ameristar Casinos and despite the FTC deciding to take their growth prospects away by forcing them to sell some properties and an under-construction casino in Lake Charles, investors liked the sound of $40 million in synergies from the transaction. Analysts spent half of 2013 saying BYD was a buy because Internet gaming was coming to NJ and the other half saying BYD could be acquired by PENN’s new REIT.
Internet Gaming was the primary reason why Caesars Entertainment (CZR) shares went up by nearly 400% in the past year. Despite being $24 billion in debt, being denied a chance to bid for a South Korean casino license due to their financial situation, and then being asked to leave Massachusetts by their Boston partner due to concerns over their background check, investors focused on the spinoff of a unit that would include Caesars Interactive.
In the supply space, investors took a little while but finally agreed with what we had been saying: that Scientific Games (SGMS) was acquiring WMS for a low price, and more than doubled the price of SGMS. Bally Technologies (BYI) agreed to acquire SHFL Entertainment sending SHFL to a 72% gain for the year and also rallying BYI shares. All this while the slot business continues its slow and steady sales decline.
Only the Macau casino market did well, growing in the high teens, well above expectations. Even with that outperformance, Macau casino stocks trailed the US casino stocks until one day in August when it was announced that Tokyo would host the 2020 Olympic Games and it was decided legalizing casinos may be the best way to have enough hotel rooms. Las Vegas Sands (LVS), Wynn Resorts (WYNN), Melco Crown Entertainment (MPEL) and MGM shares rose 50% in 3 months, prompting analysts to declare it was because of Macau. While that made no sense given the better than expected results had been occurring the whole year with no success at moving the stocks higher, it was a fitting end for the strangest year in gaming stocks history.
Now that the strangest but possibly the best year for gaming stocks is nearly in the books, the question, of course, is what happens next year? We start preparing the next Gaming Sector….Yesterday, Today and Tomorrow report and 2014 Model Portfolio while everyone else is enjoying a long Thanksgiving Holiday Weekend. All we can tell you is that 2013 may have been the best year but also the most ridiculous one and we doubt it will ever be repeated again. The good thing about investing in gaming stocks is that there always is something that captures investors’ attention. In addition we now have healthy dividend yields from many companies to attract a different type of investor. We knock on wood each year that, more times than not, our annual report accurately predicts what that will be in the coming year. Once again we repeat that past performance is not an indication of future results.
To order a copy of this report, please call 1-800-990-1902 or visit www.gamingusacorp.com. Please mention Casino Player in order to get the discounted $29.95 price.