As you can see in “Top ranking industries,” (below), gaming is not represented. In fact, you would have to keep scanning all the way down to find it in 172nd place out of the 265 industries we cover (bottom 35%).
Is that bad?
Well, it’s not good. That’s because our studies show that industries in the top half outperform the bottom half by 4 times. However, that is based on a trading time horizon of one to three months. Further down the road, this industry could turn around, making now a good time for long-term investors to get on board. Yet, I caution against that move as well.
Too often investors “hope” for a turnaround only for one not to materialize, resulting in even bigger losses. Our research shows that the better decision is to wait for some early sign of the turnaround before jumping on board. There is a reason trend following has been a successful strategy over several decades. It is easier to observe a trend and jump on board than to predict a turnaround and time it correctly. The clearest such sign is for earnings estimates to start climbing higher, which is the basis behind the Zacks Industry Rank.
Gladly, even in the worst industry there are often some healthy stocks that are standing out above the fray. So, here are three “Buy” rated Zacks Rank stocks in the group that are displaying the most upside potential:
Boyd Gaming (BYD): BYD owns 21 different gaming properties throughout the United States where they are enjoying substantial success. That was most obvious through the average 65% earnings that beat the last two quarters. They are finding more success with their regional properties, especially in the Midwest, versus their Las Vegas operations. Yet, their guidance on Vegas has improved during the past and that could become a catalyst going forward.
Isle of Capri (ISLE): Not only is this a top rated Zacks #1 Rank stock, but it also rates well with our style scores (Growth = A, Value = A, Momentum = B).
Its 40% positive earnings surprise in the past quarter sent notice to investors of the strong earnings momentum in place. A big part of this story is that management put in a lot of effort to improve its cost structure. This has proven quite successful, allowing more of the sales increase to hit the bottom line.
Penn National Gaming (PENN): It is very similar to Boyd Gaming in having a diversified portfolio of properties in different states with different brand names (most popular of which is its Hollywood Casino properties). It is also diversified into pari-mutuel gaming properties. Growth prospects are exceptional at this stage with a 127% earnings-per-share (EPS) gain expected this year, and then 65% next year.
As stated earlier, the gaming group is not currently enjoying across-the-board improvement in earnings prospects. Thus, it is not a group worthy of over weighting in your portfolio. However, each of the three stocks noted above is doing exceptionally well and have the right stuff to outperform.