2 stocks I think are worth a gamble

Credit: The Cosmopolitan

It’s a common claim that people are more likely to turn to fast food and gambling when a recession hits. Maybe win big and escape an economic downturn? Perhaps eat a few more pizzas from Domino’s Pizza Enterprises Ltd. (ASX: DMP) too.

The sad reality is that Australia is already one of the biggest gambling nations out of other developed countries, even though we have had 25 years of uninterrupted growth.

Gambling continues to be popular, which is why the following stocks will likely be taking bets for a long time to come:

Crown Resorts Ltd (ASX: CWN)

Crown’s share price took a large hit a few weeks ago when some of its employees were arrested in China. They were accused of advertising to high net worth Chinese clients to come and gamble in Australia, which they’re not allowed to do.

The market thinks there’s a risk that VIP gaming revenue (a sizeable portion of Crown’s earnings) will dry up.  However, the share price has risen 12.8% since 26 October 2016.

Crown could in fact be one of the largest beneficiaries of the tourist boom that Australia is starting to experience. The high net worth tourists will want to stay at the best hotels when they come to Australia, which Crown will be able to provide in Melbourne, Perth and Sydney.

Crown has a number of initiatives to increase profits, including a new hotel at the Melbourne complex and the Crown Sydney project which could make today’s share price look cheap in a couple of years.

Crown is trading at 17.8x FY17’s estimated earnings with a partially franked dividend yield of 6.18%.

Star Entertainment Group Ltd (ASX: SGR)

The casino operator also saw its share price fall heavily when Crown’s employees were arrested. Star Entertainment receives a sizeable portion of its earnings from the VIP gamers who come from China to gamble.

Of course, Star Entertainment reaffirmed that it stays within the law when it comes to attracting Chinese tourists.

Sydney is often the main and first port of call for international visitors. This means that Star Entertainment should see the biggest rise in international tourist visitors to its casino which is located in Sydney.

Star Entertainment shares are trading at 17.2x FY17’s estimated earnings with a dividend yield of 2.45%.

Foolish takeaway

The best time to buy stocks is when the share price is heavily hit due to one off, short term effects. The Crown arrests provide a perfect time to buy if you’ve been looking at these casino stocks but have wanted a cheaper price.

Of the two I think Crown is the better buy. Its dividend yield is very attractive, it has a big pipeline of developments and has a diverse array of casino assets in Australia and around the world.

Big, Fat, Dividends

This company's dividend is almost the stuff of legends. Its reliable cash flows support a high payout ratio, and the company's stash of franking credits are the cherry on the top of the dividend cake. Based on the last 12-months of dividends, shares are offering a fully-franked 6.5% yield, which grosses up to a whopping 9.3%, when those franking credits are included.

Discover out the name of this blue chip share along with 2 others in our new FREE report "The Motley Fool's Top 3 Blue Chips Stocks For 2017."

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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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