An Interesting Draw: 3 Small Cap Gambling Stocks to Watch

The gambling sector seems to have finally drawn a better hand, as consumers in both the U.S. and Asia are feeling a bit more flush in the first half of 2013 and willing to travel to their favorite casinos. As ValueLine analyst Dominic B. Silva sums it up: “The hotel/gaming industry is highly dependent on the business cycle and consumer discretionary spending; operating earnings can swing widely between good times and bad.”

Another positive for the industry is that people in many states don’t have to venture as far to gamble as they once did, since several U.S. states such as Pennsylvania and Ohio have legalized gambling. Casino ballot initiatives and openings are also occurring in other states including Ohio, Oregon, Arkansas, Massachusetts, Rhode Island and Maryland. New gambling developments in Asia’s such as Macau and Singapore are also boosting industry revenues and profits.

To describe the catalysts that are boosting gambling companies’ revenues and profits, analyst Esther Y. Kwon of S&P Capital IQ wrote that, “In our view, the legalization or development of new U.S. gaming markets has accelerated with the debut of gaming facilities in states such as Ohio, and state budgetary shortfalls. Casino gambling is now legal in more than 20 states, and we see a trend toward gaming machines being increasingly allowed at U.S. racetracks and other venues.”

In fact, the three largest U.S. casino-resort operators, Las Vegas Sands (NYSE:LVS), MGM Resorts International (NYSE:MGM), and Caesars Entertainment (NASDAQ:CZR) reported improved first- and second-quarter financial results, mainly due to rising demand in Macau. For example, Las Vegas Sands’ net income rose 134 percent compared to the same-year ago period, to $672 million, largely buoyed by the three phases of its Sands Cotai Central project that have opened in Macau since last April. The project generated $584 million in second-quarter revenue. The strong results in Asia offset the effects of lower profit from the company’s Las Vegas properties — a 6.8 percent increase in revenue per available room (RevPAR) was more than wiped out by lower table-gaming winnings. Revenue rose 25.6 percent to $3.24 billion.