What: The stock of Crown Resorts Ltd (ASX: CWN) has quickly turned up, gaining over 6% in morning trade on Wednesday. No headline news or company announcements seem to be driving the stock, but the casino operator isn't the only gaming and casino stock rallying.
So What: In the last five days, Echo Entertainment Group Ltd (ASX: EGP), the operator of The Star casino in Sydney and two more casinos in Brisbane and the Gold Coast, is up about 14%.
Electronic gaming machine makers Aristocrat Leisure Limited (ASX: ALL) and Ainsworth Game Technology Limited (ASX: AGI) similarly have climbed 10% and 14%, respectively, in the last week.
Before today, Crown Resorts was lagging the group, up only 6%. When I looked over the weekly gains of the S&P/ASX 200 Index (ASX: XJO) (Index: ^AXJO) companies on Tuesday, I saw how the gaming stocks group had moved and suspected Crown soon would catch up with them. Sure enough, the stock popped today.
Now what: One of the reasons for such a group move in share prices may be that investors and institutional fund managers have decided the cohort has the worst of its economic headwinds out of the way. Consumer spending could rise from the combination of low interest rates and cheap petrol from here on out.
In addition, a weak Aussie dollar makes tourism in Australia cheaper, especially for Chinese tourists. Entertainment and leisure resorts could be direct beneficiaries of increased international visitors. Gaming in Macau, the "Las Vegas of Asia", is still down in revenues overall following a Chinese government crackdown on excessive consumption, possible money laundering and capital flight.
Some of those mainstream and VIP players could make their way to Australian casinos.
Crown Resorts' joint venture company Melco Crown Entertainment Limited just opened the new City of Dreams integrated resort in Manila, so Crown could also see more players heading there to avoid Chinese government scrutiny.
Among the gaming stocks, I would prefer Crown Resorts because:
- Its share price has fallen the most in recent months.
- The stock is rallying off of a 52-week low, so investor sentiment is still fairly down on it.
- The casino operator has a long development schedule over the next 5 – 6 years for a number of new integrated resorts, so business growth potential is good.
