2013 was a year of incredible strength for the casino industry. In fact, the Market Vectors Gaming ETF (BJK), which arguably serves as a barometer of the global gaming market, has soared more than 44% on the year, easily crushing broad benchmarks in the process. And with a strong consumer market, there is plenty of reason to believe that this trend can continue in 2014 as well.
While investors can certainly play this trend with any number of casino operators, an often overlooked way to target this market is by investing in firms that make the games and technology in the casinos. This approach ensures that investors play on the broad trends in the market, while simultaneously staying away from the cutthroat competitive environment that exists between the many casinos in the world.
One firm that is worth a look in this corner of the market is undoubtedly Bally Technologies (BYI).
BYI in Focus
Bally is a Las Vegas-based company that designs, operates, and manufactures gaming systems for casinos across the globe. A big focus of the company is the slot machine segment, though it has some exposure in "smart" table games too.
This approach has been a winning strategy for BYI in 2013, as the stock has appreciated by more than 70% in the time frame. Yet, despite this huge surge, BYI could still be a great pick thanks to a modest PE below 20, and rising earnings estimates.
Although the near-term earnings estimate revision picture is a bit choppy, the longer-term revision results look pretty promising. Six estimates for BYI’s full year earnings have gone higher in the past 60 days (with zero going lower), while five have gone higher (compared to zero lower) for the next year time frame.
Plus, over the past two months, earnings have moved a bit higher for the current year period, enough to give BYI a nearly 17% projected EPS growth rate. And with growth of nearly 13% projected for the next year period, it doesn’t appear as if BYI’s story will be slowing down too much either.
But if investors are worried about BYI meeting these higher growth levels, don’t worry too much, as the company has an amazing track record at earnings season. The firm hasn’t missed since 2011, including 10 straight beats, so BYI seems to have the surprise momentum behind its stock.
Thanks to these figures, BYI has earned itself a top Zacks Rank #1 (Strong Buy), which means we are looking for more outperformance from this stock in early 2014. And best of all, in the gaming industry, BYI is currently the only stock with a top Zacks Rank, so it may be the preferred way for investors to get in on the hot casino market this year.
The casino market was very strong in 2013 as consumers came back due to rising housing prices and declining unemployment. This led to some serious outperformance for firms in the gaming industry, pretty much throughout the year.
While many investors may have zeroed in on casino operators to play this trend, firms that make the machines might also be an interesting play. These might not face as intense competition, and with the booming market, could see higher demand, suggesting that BYI and other gaming machine makers could be very interesting plays to start 2014.