The opportunity if inflation and / or Covid create a bear market is perhaps best expressed by Warren Buffet ’ s famous advice to be fearful when others are greedy and greedy when others are fearful . Anyone who bought gaming stocks in March 2020 can attest to the wisdom of those words .
FANTINI ’ S FINANCE
Bring It On Home
Long-term investing can be challenging when faced with the shadow of inflation
By Frank Fantini
The operative word for investors in 2022 may be redux , meaning bringing back .
It could be 1970s redux if inflation becomes the untamed bear sapping savings and driving down the value of investments .
It could be early 1980s redux if the Fed decides it must aggressively raise interest rates .
It could be 2020 redux if the omicron or some future variant of Covid causes a reimposition of travel restrictions and perhaps at least partial business shutdowns , if not the full lockdowns of two years ago .
Recently , technology stocks of all stripes have been selling off , and most especially those of companies that have no profits , but merely the promise of profits someday . That includes iGaming and sports betting stocks that recently were sky-high as they traded on extraordinary multiples of estimated revenues three and four and five years out , as many have no profits upon which to value them .
If either or both of those scenarios come to pass , it will not make for pretty stock action .
Those who remember the stagflation of the 1970s recall that the 1973-74 bear market was one of the worst and most depressing ever . It wasn ’ t a crash ; it was a grinding down day by dispiriting day .
Of course , the sudden lockdowns of February 2020 set off a panic that shattered consumer discretionary stocks , including gamers , leaving some of them down 90 percent .
For fundamental , long-term investors it can be frustrating as such phenomena become the overwhelming determiners of the direction of stock prices .
But for the patient , fundamental investor , dislocations that have little or nothing to do with the intrinsic value of a company present buying opportunities .
That may be especially true in gaming . The reality is that gambling will be here after inflation subsides and long after the present Covid pandemic is a distant memory .
Well-run companies with reasonable debt structures will survive to enjoy good times and to take advantage of speculative competitors demolished by the powerful , though ephemeral , economic forces .
Let ’ s use Penn National as an example . In early 2020 , the stock was selling in the mid-to-upper $ 30s . Then Covid struck . PENN plunged to an intraday low of $ 3.75 on March 18 , having lost 90 percent of its value . Today , even after its roller coaster ride of the past year largely because of fickle investors in online gaming and sports betting , the
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The opportunity if inflation and / or Covid create a bear market is perhaps best expressed by Warren Buffet ’ s famous advice to be fearful when others are greedy and greedy when others are fearful . Anyone who bought gaming stocks in March 2020 can attest to the wisdom of those words .
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stock is in the upper $ 40s . In other words , the opportunistic investor who bought at the bottom is enjoying a greater than 1,000 percent profit . The long-term investor not shaken out of the stock by Covid fears still enjoys a profit of 30 percent or more in less than two years .
PENN is an extreme example , but is representative of the trend in gaming stocks during and since that time , both among casino companies and suppliers .
The opportunity if inflation and / or Covid create a bear market is perhaps best expressed by Warren Buffet ’ s famous advice to be fearful when others are greedy and greedy when others are fearful . Any- one who bought gaming stocks in March 2020 can attest to the wisdom of those words .
The advice as to where to invest during inflation is almost universal : companies with pricing power , those with hard assets such as real estate and those that pay dividends .
Casino stocks score on pricing power . If people want to gamble , they will sit at a $ 25 blackjack table as well as a $ 10 table . Those who play a 91 percent payback slot machine will play a 90 percent payback machine , by and large .
As mentioned here before , gaming REITs satisfy the hard assets and dividend payout standards . And as Gaming and Leisure Properties and VICI Properties demonstrate with their latest transactions , the companies are finding ways to grow . Indeed , as part of those real estate acquisitions , both are positioning themselves to benefit beyond rents as GLPI partners with Cordish Companies ’ future growth of its Live ! properties and VICI prepares to invest up to $ 1.5 billion to finance Hard Rock International ’ s plan to remake the Mirage .
Another old line is that demographics are the future . The population of Las Vegas is rapidly growing , and that is unlikely to slow in the foreseeable future . Several companies — Red Rock Resorts , Golden Entertainment , Boyd Gaming — benefit from that demographic growth . It also helps that they have embedded value in the real estate they own .
Those companies have also experienced leaders who have demonstrated their ability to execute on their business plans .
That brings us to another favorite line from Buffet about bear markets : Sometimes , the market puts America ’ s best companies on sale .
If a bear market does come , there won ’ t be a need to search for speculative growth stories . Just look for profitable companies with proven management executing prudent growth strategies and whose stocks are selling at bargain prices .
Frank Fantini is principal at Fantini Advisors , investors and consultants with a focus on gaming .
12 Global Gaming Business FEBRUARY 2022