Why Casino Stocks Popped Then Eased Off Today | The Motley Fool

Tuesday 7th April 2020

Travis Hoium has been writing for fool.com since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things. Follow @TravisHoium

Shares of casino stocks jumped in early trading today as Wall Street seemed bullish that the COVID-19 economic shutdown might end sooner rather than later. You can see in the chart below that casino stocks jumped as much as 30% as the entire industry moved sharply higher. But as the day wore on, the euphoria wore off, and the gainers were up no more than single digits at the close, which is still welcome for a beaten-down sector.

Source: Google Finance.

The market is trying to figure out when the COVID-19 shutdown of casinos will end and resorts can get back to normal. So, as the news changes every day, the market reacts as well. Monday and early today, the news seemed relatively positive with new confirmed cases of COVID-19 down for the first time, and traders immediately started to think that the worst might soon be over. On Tuesday, the numbers have been a little worse as the day wore on, so some of that optimism evaporated.

While it's understandable to be optimistic when data is good, it's important to take the long view on both the current crisis and the casino industry. COVID-19 is going to keep economic activity, particularly travel, low for the foreseeable future and may impact the economy into next year.

That said, resorts eventually will get back to business and begin generating revenue, even if revenue is weaker than before the pandemic. So investors with a long, Foolish view of casino stocks should be looking for companies built to survive and then thrive after the crisis.

While the COVID-19 pandemic is hitting the U.S. hard, it's less pronounced in other parts of the world right now. China, Hong Kong, and Singapore, in particular, are starting to return to some level of normal activity, and casinos are open for business as well. Macao had an 80% drop in gambling revenue in March, but in the next few months, resorts may be generating positive cash flow if visitation to the region improves.

I think investors should be looking at stocks of companies with operations in diverse regions of the world, including Asia, to reduce geographic exposure. Wynn Resorts and MGM Resorts, of this list, would be the first to benefit and may already be seeing promising signs for their Asian operations.

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