Why These Casino Stocks May See a Bull Market, Even If the Rest of the Market Is Selling Off

MGM -0.28% DKNG -0.77% CZR +0.13%

Whether you're a gambling aficionado or not, most investors are well aware of how profitable casinos are. The house edge that they carry tends to produce very consistent profits over the long-term, given the law of large numbers. It's hard to lose money running a gambling outfit, and that's something that investors (and many municipal governments that rely on gambling-related levies) rely on.

Quick Read

• MGM Resorts (MGM) reported Chinese revenues surged 20% year-over-year in its most recent quarter.

• Caesars Entertainment (CZR) trades at just 11-times earnings despite digital gaming revenues surging 29%.

• DraftKings (DKNG) holds the leading market share position in U.S. online sports betting.

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Of course, there are different degrees of operating excellence within the world of gaming, and that's always going to be true. Some casino operators are able to really push the limits of their edge, and how much they're able to bring home as a percentage of the overall amount gambled during a given quarter.

Here are three of the best such casino stocks in the market, in my view, and why they're poised for continued outperformance over the long haul.

MGM Resorts International (MGM)

No list of top casino stocks can really be complete without discussing MGM Resorts International (NYSE:MGM).

The Vegas-based casino operator remains one of the top names in the gambling world, and it's actually a personal favorite of mine when I hit the blackjack tables. Personal anecdotes aside, there are a number of top fundamental reasons why MGM stock has been on a recent uptrend, and is looking to finish the year in the black (currently hovering right around flat in terms of returns for the year).

In MGM's most recent quarter, the company posted mediocre results, with overall consolidated net revenues rising only 2% year-over-year. That said, the company's Chinese revenues surged 20% over the same time frame, and there are plenty of investors pointing to the company's international and regional operations as reasons to buy this stock. I'm intrigued by these numbers, and do think that the company's overall revenue growth should pick up if we see broader economic improvements in the coming years.

That's a lot of ifs. But as MGM shifts to a more asset light model, the hope is that this company can implode its margins and see its valuation multiple increase. Trading at a forward price-earnings ratio of just 15-times, MGM stock is simply too cheap right now. It's a buy in my books.

Caesars Entertainment (CZR)

Another top Vegas-based casino operator I think investors should consider as a top cash cow worth investing in is Caesars Entertainment (NASDAQ:CZR).

Now, this is a top casino operator that's been crushed over the past year. Indeed, any investor considering CZR stock needs to consider that this is a name that's down 30% over the course of the past year. That's hard to do, unless investors are broadly losing faith in a given company's ability to produce meaningful profit growth.

In recent quarters, Casears has shown weakness, with same-store sales actually declining year-over-year. That said, digital imaging revenues surged 29% over the same time period, suggesting Caesars could be looking to move from an asset-heavy model to a much asset-lighter model, in a similar way to many of its peers.

Online gaming still makes up a small percentage of the company's overall business, and investors will undoubtedly want to see better growth from its in-person Vegas operations. But given the shifting focal points of this sector, and improving margins, I think Caesars is an intriguing pick as an undervalued casino stock that has meaningful upside potential. At just 11-times earnings, it's hard not to like this stock here.

DraftKings (DKNG)

Among the top online gaming operators in the world, DraftKings (NASDAQ:DKNG) is revolutionizing the future of how we gamble.

Via providing a world-class online betting platform for those in applicable states to place bets on everything from sporting events to horse racing and traditional casino games, there's a little bit for everyone with this platform.

As more and more states legalize online sports betting (and take a cut of the revenues over time), DraftKings stands to benefit. This is the leading provider of online gaming in the U.S., and the company's market share lead is one I don't think will be given up any time soon.

I've personally used this platform, and can attest to DraftKings' user friendly interface and its ease of betting. for those who are betting that online gambling will continue to take market share from the sort of bricks-and-mortar operators (such as the first two picks on this article) over time, DraftKings is perhaps the best way to go.

This stock isn't cheap, but it's worth the market premium right now in my view.

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