Over the years, gaming and casino stocks have been under varying degrees of pressure. Some traditional casino stocks have dealt with macro headwinds and increased competition from their digital-only rivals. So, many big casino names have placed big bets of their own on digital gaming. In many ways, the big, public casino operators have effectively adapted to the high-tech age.
Despite depressed valuations on some of the more beaten-down gaming stocks, I would be a tad concerned. What if the recent economic softness that’s been troubling markets turns into a prolonged period of stagnation or even a recession.
It seems highly unlikely the economy will suffer a hard landing at this juncture, not with the Federal Reserve poised to cut rates next month. However, if the Fed proves a bit behind the curve, a soft landing type of downturn can’t be ruled out.
A mild recession could further weigh on the gaming plays. Indeed, it’s a stretch to say that they’ll crash and burn (they may not have much more downside after their recent pullbacks), especially if there’s no hard landing for the economy in the cards. However, it can’t hurt to be cautious about the following names amid this market sell-off.
In short, the following gaming stocks look promising over the long term. Yet, they are scary over the near term, given their technical backdrops, especially if this August market pullback continues. None of the following stocks are timely sells in August. But if you’re eager to raise cash, these names may make sense to trim.
MGM Resorts (MGM)
First, we have a stock that’s already crashed and burned over the past month. At writing, MGM Resorts (NYSE:MGM) stock is down around 16% over the past month. This is thanks in part to a relatively decent quarter that failed to impress Wall Street. Now down around 29% from all-time highs, the bear is very much in the driver’s seat.
At $37.49 per share, MGM stock actually looks quite cheap at 13.7 times trailing price-to-earnings (P/E). Recently, the stock is recovering modestly on news that some big-name insiders are buying. They include the Chief Executive Officer, Chief Financial Officer and a board director who all bought shares. So, perhaps MGM is a great long-term buy on the dip.
In the near term, though, I’m not a fan of the technical picture. And I think traders could continue to feel the pinch, especially if recession fears go into overdrive. Additionally, InvestorPlace contributor Matthew Farley previously mentioned MGM was a stock to sell due to its earnings volatility and high debt load.
In short, MGM is a great company that looks cheap with plenty of insider buying activity. Yet, it may still be at risk of modest downside if a recession does hit. MGM stands out as more of a hold than a sell unless you’re keen on shoring up cash. Though, it may be a bit of an exaggeration to think that MGM could crash and burn from here.
DraftKings (DKNG)
DraftKings (NASDAQ:DKNG) is a digital gaming kingpin that’s been crashing lately.
However, it’s down more than 38% from its 52-week high. Though it pains me to mention the name as a sell candidate, I see the technical backdrop as rather concerning. True, whenever DKNG stock picks up negative momentum, it can be difficult to catch the falling knife.
At any rate, notable analysts are staying bullish on the stock despite the recent plunge. Notably, Jefferies’ David Katz likes the set-up for Q4 of fiscal years 2024 and 2025. If no recession looms, I’m inclined to agree with Katz, considering DKNG to be a solid buy. However, patient investors may have a shot to pick up DKNG stock closer to a support level of $25 per share if this market-wide sell-off intensifies.
Fellow InvestorPlace contributor Thomas Niel mentioned DraftKings stock as one of the consumer discretionary names to sell in August. The author cites a gaming tax surcharge as a reason the name may be a bad bet. He’s right in that gaming taxes could act as a notable overhang on the stock for quite some time.
In short, DraftKings is a solid long-term bet. But it could succumb to negative momentum in the near term if this August stock market sell-off has yet to conclude. As to whether it will crash from here, I wouldn’t get my hopes up, especially since shares have already taken one to the chin.
Flutter Entertainment (FLUT)
Flutter Entertainment (NASDAQ:FLUT), the firm behind such brands as FanDuel, is a well-run digital gaming stock. Recently, it fell back into bear market territory (20% fall from highs).
Arguably, Flutter Entertainment is one of the better sports betting companies to monitor as the market continues sagging. Despite being the king of sports betting plays in America, I worry about the potential downside should anything harder than a soft landing rock the U.S. economy.
At the end of the day, it doesn’t matter how well-run a company is in the face of an economic downturn. Less disposable income in the pockets of consumers means less cash to gamble on one’s favorite sports teams.
For now, I think it’s far too soon in the game to place a bet on a bounce in FLUT stock, at least not with a toppy technical pattern that looks to be in the works. Though I’m not against holding FLUT amid the dip, I believe the name seems like a typical “buy back at lower prices” type of play, especially if more weak U.S. economic data points surface.
Can Flutter stock crash and burn from here? Probably not. Either way, it’s more dangerous to bet against the stock, especially since most of the damage may already be in the books.
On the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.