ASCA A SPAC I Acquisition Corporation

Willing to roll the dice on gaming stocks? Well, it is not quite the gamble you may think it is.

2 Sides of the Coin

Essentially there are 2 scenarios that could play out and they are not mutually exclusive. It is starting to look like a win-win situation.

1.) If we see more economic optimism moving forward, the propensity to gamble will rise and lead to more money for gamin companies. That is pretty straight forward. Will we? That is very much up for debate right now.

2.) But the other angle here is the struggling state budgets. There are plenty of opponents to having casinos allowed in particular areas. But guess what has even more opponents? Raising taxes.

Here in Chicago, we are riddled with taxes on all levels and fees for just about everything. As a result, there are talks to allow casinos in Chicago and other areas in the state. This is not entirely new, but more people are on board now, seeing it as a way to bridge budget shortfalls rather than raising taxes. And I am willing to bet other states will see similar legislation.

The Party is Over

In addition, in recent months the U.S. has come down hard on internet gambling sites, effectively shutting down that segment of the gaming industry. Online gambling has been embattled for years, but the fatal blow may have just been dealt.

While not a huge impact, many professional poker players will have to turn to live games. And those who have satiated the gambling itch online will have to hit brick and mortal locations.

Safe Bets

Ameristar Casinos (ASCA) has several locations across the U.S. Right now the company does not have any new projects slated, which would give them a big boost, but even if nothing changes, they are in pretty good shape.

Estimates spiked after the last quarterly report. The full-year consensus estimate for 2011 is up 65 cents in the past 3 months, to $1.72. Next year's forecast popped 92 cents, to $2.06. That puts growth rates at 135% this year and another 20% next year.

Shares are trading at just 13 times forward estimates, with a PEG ratio of 0.8 and have a Zacks #1 Rank (Strong Buy).

Melco Crown Entertainment (MPEL) owns gaming and entertainment resorts, primarily in Macau. Not necessarily a play on the domestic budget angle but a solid gaming company and a Zacks #2 Rank (Buy).

Estimates for 2011 are now averaging $0.24 per share, up from $0.15 before the quarterly report. Next year's Zacks Consensus Estimate is up 10 cents, to $0.38. In 2010 the company made just $0.02, so profits should be up 12 times this year and another 58% next year.

Just looking at the P/E, shares look a bit pricey at over 40 times the 2011 estimate. But factoring in the long-term growth rate gives you a PEG ratio of just 0.6, which is a bargain. The price to book is right near 2.1.

Bally Technologies, Inc. (BYI) makes, operates and distributes gaming machines and technology worldwide. They offer slot machines and other lottery-style games as well as various casino management services.

Not sure which casino company to target? This one as exposure to the industry as a whole. Right now BYI has a Zacks #3 Rank (Hold) but that could be changing soon. Bally just announced an enterprise-wide agreement with Caesars on June 14th.

The biggest casino entertainment company in the world will implement Bally's machines across their casino operations. Other details were not immediately announced, but could be substantial given Caesars massive operation.

What are the Odds?

There are plenty of other casino and gaming related companies out there, these are just a few. But, if you see the industry as beaten down and undervalued with some upside potential, now may be a good time to roll the dice.

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service
 
AMERISTAR CASIN (ASCA): Free Stock Analysis Report
 
BALLY TECH INC (BYI): Free Stock Analysis Report
 
MELCO PBL ENTMT (MPEL): Free Stock Analysis Report
 
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