Gaming Stocks Heavily Out of Favor Among Consumer Names, Says Stifel

Gaming stocks are enduring punishment as US equity markets tumble Monday thanks to escalating investor fears regarding the impact of the Delta variant of the coronavirus. This is the latest sign that graming stocks are out of favor with market participants.

A recent quarterly survey by investment bank Stifel covering six groups across the consumer discretionary where casino equities reside and consumer staples sectors indicates investors are rapidly losing confidence in gaming names.

We found net bullish/bearish sentiment heading into earnings season is split, with Sports Lifestyle Brands and Gaming Leisure the only standouts—50 percent of respondents have a bullish view of Sports Lifestyle Brands, while 67 percent of respondents held a bearish view for Gaming Leisure,” said Stifel analyst Chris O Cull in a note.

Underscoring the weakness in the broader gaming space, the VanEck Vectors Gaming ETF (NASDAQ:BJK) is off nearly 1.5 percent in midday trading, on volume that already surpassed the daily average. That after the exchange traded fund slumped almost five percent last week while shedding 8.66 percent over the past month.

Last year, casino equities were the most repudiated at the start of the coronavirus pandemic. Investors bailed on everything from regional gaming operators to those with heavy international exposure. That was amid global gaming property shutdowns and fears debt servicing and lease obligations could be problematic .

That scenario rapidly reversed as the US government sent financial assistance to Americans. That prompted Wall Street to anoint gaming stocks among the ahead of leisure groups. Buoyed by that status, the rise of iGaming, and the increasing legalization of sports betting, gaming stocks finished 2020 among the best-performing names in the US.

With margin improvement largely baked into gaming stocks and some investors expressing concern about the lack of profitability sported by big names in the online sports betting space, market participants are quickly turning on this once-hot group this year.

The second-quarter “results represent a stark reversal from last quarter s reopening trade sentiment, which saw investors most bullish on Restaurants and Gaming Leisure. Food Tobacco, which had bearish sentiment last quarter, saw an improvement, though sentiment remains slightly negative,” says Stifel s O Cull.

Weakness among gaming equities isn t uniform this year. For example, Penn National Gaming (NASDAQ:PENN) – one of last year s in the space – is sliding because its margin expansion story may not be fully appreciated.  There are also concerns about Barstool Sports market share figures.

Conversely, Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) are sagging because the recovery in Macau is taking longer than expected.

If the Delta variant persists and becomes worse than it already is, those names and others could be vulnerable. Monday is just one day, but if it s any indication, some investors may be preparing for a move back into “shutdown” gaming plays. That s because DraftKings (NASDAQ:DKNG) and Golden Nugget Online Gaming (NASDAQ:GNOG) are two of a small number of equities in this group trading higher on the day.