Caesars, Sands Among Speculative Stocks with Rebound Potential

Posted on: August 1, 2022, 02:00h. 

Last updated on: August 1, 2022, 12:35h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

The S&P 500 is still saddled with year-to-date loss of 13.26%. But the benchmark domestic equity gauge gained 8.32% in July, with contributions from some consumer discretionary names, including casino stocks.

Caesars Entertainment (NASDAQ:CZR) and Las Vegas Sands (NYSE:LVS) were among the casino stocks delivering July upside, gaining 13.46% and 12.14%, respectively, as market participants stepped back into the consumer cyclical sector. With that, Credit Suisse says new market leadership is emerging and some of it is attributable to “speculative” names, including those in the gaming industry.

With commodity prices falling and economic data softening, inflation is projected based on both breakevens and economist forecasts to steadily decline over the next 24 months,” Credit Suisse’s equity analysts wrote. “We believe this will lead the Fed to pivot toward more dovish policy as we move toward the latter part of the year, supporting a continuation of the market’s current rally and factor leadership.”

The bank defines speculative stocks as those with one or more of the following traits: High correlations to bitcoin, expensive earnings multiples, significant drawdowns on a 52-week basis, elevated volatility, and substantial short interest.

Caesars, Sands Check Those Boxes

On the basis of the aforementioned criteria, Caesars and Sands both appear on a Credit Suisse list of 50 stocks with speculative traits that could lead a new market rally.

In the case of LVS, it’s believed that the news flow out of Macau cannot get much worse, and data confirms Marina Bay Sands (MBS) in Singapore is well on its way back to pre-coronavirus pandemic levels of profitability and top-line growth.

Owing to its US focus, Caesars is in a more delicate position regarding potential vulnerabilities to inflation and a slowdown in consumer spending. On the other hand, Nevada casinos are coming off their best 12-month revenue stretch on record. That’s meaningful to Caesars because it’s the second-largest operator on the Las Vegas Strip and has properties in Laughlin and Reno-Tahoe.

Other Casino Stocks on the List

Caesars and Sands aren’t the only the casino stocks on the Credit Suisse speculative. As a big drawdown, high short interest name Penn National Gaming (NASDAQ:PENN) is also on the list.

That stock jumped 11% last month. Wynn Resorts (NASDAQ:WYNN) posted a July gain of 9.45%. The Wynn Macau operator appears on the Credit Suisse rankings owing to a massive drawdown, significant short interest, and above-average volatility.

Since June 16, the best-performing of the aforementioned factors is high correlations to bitcoin, followed by expensive valuations and those with big drawdowns.