Will gaming stocks continue the bull run?
Adanger in writing a column well in advance of publication is that circumstances can change dramatically before it sees print.
That is true in writing about the stock market at any time, but especially this year.
As of this writing, the Dow Jones average has fallen more than 1,000 points in two of the past four days,
and we don’t know whether we are experiencing a correction,
Whether that correction has run its course or has more downside to cover, or whether we are at the start of a bear market.
What has been true so far is that gaming stocks, which far outperformed the market during its great bull run,
continue to outperform on the way down.
For example, the Dow dropped 4.6 percent on the first big day down and 4.15 percent on the second,
Correction Concerns Compared to 3.25 percent and 3.74 percent drops for Fantini’s North American Gaming Index.
The difference might not have been so much confidence in gamers as investors fleeing certain big-cap stocks, as the gaming declines were closer to those of the Russell 2000, whose component companies are nearer in size to the typical casino stock. And, of course, investors did react to specific company news.
Penn National sold off 7.95 percent on the second big down day, helped by reporting four-quarter financial results that disappointed some analysts.
Scientific Games is down 27 percent from its peak, but that is still five times higher than when its bull run began in the summer of 2016.
One investor concern is potentially higher interest rates if the Federal Reserve Board thinks the economy is overheating and driving up inflation.
That would be a concern for gaming companies, many of which have. considerable debt, though they also
have spent the past year or so refinancing down to lower interest rates,
Converting variable debt to fixed interest, and putting off maturity dates to buy time for the economy and their own finances to work their way out.
Still, a caution to investors: look at the debt structure with a keener eye today WYNN RESORTS Steve Wynn’s resignation as CEO of his eponymous company.
Correction Concerns Started immediate speculation that Wynn Resorts may be sold at some point, if not in the near term.
A possible sale makes sense at first glance, considering the company, no matter how well managed,
Has lost its founding genius, which seems likely to dim some luster over time.
However, MGM Resorts CEO Jim Murren was quick to throw cold water on that idea, pointing out that WYNN’s $17 billion market cap makes it a pretty big company to swallow. The days of mega-mergers are over, he said.
But to Murren’s no-so-fast, we’ll add our own not-so-fast, Jim.
There might be a business analogy to the old expression that you eat an elephant one bite at a time.
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