In late 2018, I’d discussed whether investors should bet on gaming stocks ahead of the new year. While these “sin stocks” are not recession-proof, casinos have shown resilience during difficult economic times. Unfortunately, both stocks have struggled mightily in the first half of 2019.
Investors looking for a worthy gamble in their Tax-Free Savings Accounts should consider both equities today. I want to examine why these gaming stocks offer attractive value in the lead-up to July.
Great Canadian Gaming
Great Canadian Gaming (TSX:GC) had a strong start to 2019. Shares managed to challenge its all-time high in late February and early March, but the stock plunged after its fourth-quarter and full-year 2018 earnings release. It was hit with more bad news in May. In the first quarter of 2019, Great Canadian Gaming’s British Columbia casino tables have seen a decline in spending due to an anti-money laundering crackdown.
This turmoil is troubling, but the regulatory crackdown may be fortuitous for investors looking for a more attractive entry point. The company is set to release its second-quarter results in August. Revenues rose by 35% year over year in Q1 2019 with the GTA Bundle providing a big boost. It is moving ahead with bold revamps at these newly added locations.
Great Canadian Gaming does not face any major competition, and the stock is currently trading at a solid P/E of 17. Shares had an RSI of 52 as of close on June 26, which puts the stock in neutral territory as of this writing. The stock is trading at the low end of its 52-week range.
Stars Group (TSX:TSGI)(NASDAQ:TSG) stock has been on a brutal downtrend since reaching an all-time high early last summer. The stock has lost 54% of its value in the year-over-year period as of close on June 26. I am still bullish on Stars Group in the long term, as it has carved out a nice position in the online gaming market. It still stands to benefit in a big way from the legalization of sports betting in the United States.
On the topic of legal sports betting, Stars Group’s partnership with Fox carries a lot of promise. New Jersey, one of the first states to legalize sports betting after the Supreme Court decision in May 2018, has brought in a total sports betting handle of $3 billion. Mobile sports bets brought in the lion’s share of revenue over this period.
Stars Group and Fox will launch a free-to-play sports prediction game and, more crucially, the FOX Bet real money wagering app. Fox’s sizable footprint and access to consumers will go a long way to growing its app in states that have already legalized sports gambling.
That leaves investors with a gamble in front of them ahead of Stars Group’s next earnings release, which is expected in August. The stock had an RSI of 33 as of close on June 26, which puts shares just outside technically oversold territory. I have Stars Group as a worthwhile buy-low candidate in the early summer. This is a stock that can richly reward investors in the long term.
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Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.