Since 1928, October has been one of the ugliest months for stock returns. Although the S&P 500 Index rose 0.4% on average, when the return is negative it is considered the worst month to invest, falling an average of 4.7%.
This year could be different as COVID-19 cases, hospitalizations and deaths are down in October. This could open the door to robust spending in the months to come. We asked three Fool.com contributors for the best actions to take advantage of renewed spending on recreation and games. They recommended Monarch Casino & Appeal (NASDAQ: MCRI), MGM International stations (NYSE: MGM), and Zynga (NASDAQ: ZNGA). Here’s why.
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Small scale but great yield potential
Jason Hawthorne (Monarch Casino & Resort): Although it is a public company, 30% of Monarch is owned by a single family, the Farahis, who also operate the business. It’s comprised of the Atlantis Resort in Reno, Nevada, and its remodeled Black Hawk Resort 35 miles west of Denver. Unlike the big casino companies, Monarch generates most of its revenue from customers who live within an hour’s drive of either location. Both sites are well positioned. Reno’s population is growing at more than twice the national average. Denver’s is growing even faster.
Prior to 2020, the company steadily increased its revenue and profits. And it paid off for the shareholders. In the decade leading up to the pandemic, stocks returned 680%. Today, the company is returning to growth as the pandemic subsides. Sales and net income for the first six months of 2021 were 42% and 61% higher than in 2019, respectively.
Part of this growth is due to an expansion of its Black Hawk casino. It is one of only three cities in Colorado where commercial gambling is permitted. And this city is the largest with 73% of the income. According to management, the Reno site also has the floor space to support future expansion.
The company recently shared some unexpected news to watch. In August, COO David Farahi announced he would be leaving Monarch. While this piques the interest of any company, it’s even more curious since he’s the son of CEO John Farahi. David was the public face of the company and was widely seen as a potential successor to his father. While departure is a consideration, it looks like Monarch is set for many years of profitable growth. It should be gratifying for shareholders who aren’t afraid to own shares in a $ 1.3 billion company that many have never heard of.
Bet on an even bigger return
Rich Duprey (MGM Resorts): World-class casino operator MGM Resorts may not seem like such an obvious buy at first glance, but since it derives most of its revenue and profit from the US market, which is more robust than that of China, it does not have the same risk profile as Sands of Las Vegas Where Wynn Resorts, who depend on Macau for most of their money.
Las Vegas has seen a particularly strong comeback and MGM is a dominant force on the Strip. He runs a thin asset model that allows him to operate some of the better-known casinos, such as The Mirage, Luxor, and New York-New York, but sells the land below to real estate investment trusts, raising dozens. billions. cash in the process.
MGM continues this practice by announcing the acquisition of the upscale Cosmopolitan resort on the Las Vegas Strip for $ 1.6 billion from an investment firm. black stone the land being sold to a consortium of investors.
MGM also owns one of Atlantic City’s best casinos, the Borgata, and owns a number of other properties in other growing regional markets including Biloxi, Mississippi; Detroit, Michigan; and Forest Heights, Maryland.
Beyond the physical casinos run by MGM, it also owns one of the fastest growing sportsbook in the country, BetMGM. He aims for overtaking DraftKings as the second largest player in the space, and has a 25% share in New Jersey, by far the largest sports betting market. It expects to be operational in around 20 states by the end of the year.
BetMGM is also the leading online casino games app with a 30% market share, double the amount of any other platform.
MGM Resorts finally returned to profitability with generally accepted accounting principles (GAAP) net income of $ 105 million, or $ 0.14 per share, and was able to generate adjusted earnings on its assets in China despite the miasma of this market.
With higher vaccination rates and a pandemic appearing to be receding, MGM Resorts is a gaming and entertainment giant that will continue its inexorable rise.
This gem of a stock is in the bargain bin
Keith Noonan (Zynga): It has been a disappointing year for Zynga shareholders. In the wake of an impressive rally, the video game company’s share price is now down 24% in 2021 trading. The stock is also down about 39% from its highest 52 week high.
The shares were crushed after the publisher released its second quarter results in early August. Narrowing opportunities for growth in games advertising and volatility for the broader market also weighed on the valuation of the company.
The company’s second quarter results arrived with forecasts for weaker-than-expected booking growth and changes that Apple made to advertising policies on its mobile ecosystems complicate the outlook for the game maker. Alphabet is also implementing changes to privacy and advertising settings for its Android mobile operating system.
Zynga was positioning game advertising as an increasingly important component of its growth strategy, and adverse developments in the mobile advertising market represent a real setback. So why is stock always a good buy?
For starters, stocks look very cheap at current prices. With the company valued at around $ 8.2 billion, it is now trading at around three times this year’s expected sales and 21 times expected earnings. These are attractive levels for a company that still has a very encouraging avenue for long-term growth.
Zynga generates the vast majority of its revenue from user purchases of its free games, and its core business still looks pretty strong. The ad disruption is unfortunate, but the company is already making impressive sales, and changes to mobile advertising and privacy on mobile platforms are not going to destabilize the business.
Zynga has a formidable collection of game franchises and development studios to work with, and the company remains well positioned to capitalize on favorable winds in the mobile games industry. At current prices, just one new stock could completely change the stock narrative and cause stocks to soar.
10 actions we prefer at MGM Resorts International
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Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Jason Hawthorne has no position in the stocks mentioned. Keith Noonan owns shares of Zynga. Rich Duprey has no position in the stocks mentioned. The Motley Fool owns shares and recommends Alphabet (A shares), Alphabet (C shares), Apple and Zynga. The Motley Fool recommends the following options: March 2023 long calls at $ 120 on Apple and March 2023 short calls at $ 130 on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.