One of the last places you probably want to be during the height of a pandemic is a crowded casino. That may help explain why gaming stocks cratered this year. But it was then that Mark Notkin, who has managed Fidelity® Capital & Income Fund (FAGIX) since 2003, stayed focused on the long term.
“Despite fewer visitors and more restrictions on casino capacity, these companies have succeeded in streamlining costs, particularly related to promotion, and have actually improved profitability at their regional properties,” he says.
Before COVID-19, Notkin’s favorable outlook was largely based on his view that gaming tends to be a steady, sticky business. “In addition, we see limited competition, with states not issuing a lot of new licenses,” he notes.
His longer-term conviction is strong enough that he stuck with large fund investments in Penn National Gaming (PENN), Eldorado Resorts, and Boyd Gaming (BYD), even when their stocks plummeted in 2020.
The strong reopenings have confirmed his view and rewarded his patience, he says. “Customers still showed up because, well, they like to gamble.” He adds that investors’ enthusiasm for the legalization of sports betting—in person and especially online—in many states has been an added tailwind and is generally viewed as a long-term source of growth.
Penn has purchased a stake in Barstool Sports, an online platform with a huge following and social media presence, giving it a leg up in the market for online sports betting, Notkin says.
In July, Eldorado merged with Caesars Entertainment (CZR) to create the largest gaming company in the US. In September, the newly combined entity announced a plan to merge with UK-based gambling group William Hill (WIMHF) to expand in the fast-growing US sports-betting market.
Looking ahead, Notkin believes regional gaming companies can survive— even if social distancing and consumer reticence restricts foot traffic in 2021—and can likely thrive thereafter.
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