Gambling has been around for ages, but only in about the last quarter century has it spread (legally) nationwide here in the U.S. Just last fall, for instance, New York voters approved a constitutional amendment to allow as many as seven full-scale casinos in the state.
The American Gaming Association reports that gross gaming revenue for the commercial casino industry reached a near record $37.34 billion in 2012 (the most recent data available). That's a 9% increase from the industry's 2009 trough, during the depths of the Great Recession, and it's 30% higher than in 2003.
This is not to suggest that the gambling industry will continue getting blackjack. Bloomberg Businessweek recently reported on how the expansion in gambling has spread thin the industry's revenue. As more states have allowed casinos, some longtime gambling centers have been hit hard, among them New Jersey and Mississippi.
Nonetheless, investors still have some nice choices in the gambling patch, and two companies in particular are well-priced and worth your consideration. Of course, that's assuming you are willing to take a -- well -- gamble on them. Both are liked by my Joel Greenblatt-based strategy, one of the stock screens I've developed based on the writings of highly successful investors.
The Greenblatt screen focuses on just two variables. One is earnings yield: earnings before interest and taxes, divided by its enterprise value, which includes the debt used to generate earnings. This measures how much of a return, or yield, an investor can expect if he or she were to buy the entire business. The second Greenblatt variable is return on total capital -- total capital divided by earnings before interest and taxes. For each of these variables, we stack the company against the thousands of others in our database, and then we combine those two rankings for a final result.
At any rate, one company liked by the Greenblatt strategy is International Game Technology (IGT), which makes casino-style gaming equipment such as slot and video poker machines. In recent news on the name, last month management announced it would reduce its workforce by 7%. These are still fairly tough times in the gambling industry, but IGT is a well-priced stock and a well-performing company. Among all the names in our database, the Greenblatt strategy ranks it an impressive 42.
Multimedia Games (MGAM) also makes gaming equipment, including slots and video game machines. Among all the stocks in our database, Multimedia is ranked a jackpot-like 9.
Given the travails of the gambling industry in recent years, these two stocks are definitely a gamble. But both are well-positioned, they're major players and they have good track records. If you are willing to take a flyer, either of these is worthy of your consideration.
