Online Gambling and Other "Sin" Stocks Good Investments During Recession

Smoking, drinking, gambling, sex: These are all "indulgences" that may actually increase during times of recession.  Hence, one should consider investing in stocks such as MGM and the Altria Group, Inc, a spinoff of Philip Morris International.   Likewise, online gambling stocks should become hot again after weathering the storm that was a measure in late 2006 to force these publicly traded firms out of the US market.  Private online gambling companies remain.

Some hot stocks in this sector (Note: Gambling911.com is not an "investment analyst"):

Sportingbet - Chairman Peter Dicks lifted his stake in the online betting company by more than half on Thursday, spending nearly £50,000 on shares. He took 119,000 shares at 38.5p each, taking his holding to 339,440 shares.

Many of you might recall that Dicks was apprehended in late 2006 en route to the US after the state of Louisiana issued an arrest warrant against him.  Another shady figure in the world of trading?  Hardly.   Dicks is considered an upstanding individual caught in an overzealous web of "protectionism" whereby Louisiana was trying to rid itself of online gambling activity in an attempt to foster its own land-based casino industry, hit hard by Hurricane Katrina. 

Dicks was held briefly in New York State before then Governor George Pataki decided not to extradite him to Louisiana.  An embarrassed Dicks left the company briefly, settled with the State of Louisiana (all charges being dropped we might add), then joined back up with the company he loves.  After all Sportingbet has been through, this is one company that is going to rebound nicely.  It's all been laid out on the table.

Gambling911.com would also like to point out that - along with Cryptologic, another online gambling company that should see growth in this sector over the next 12 months - Sportingbet was among the first of the successful publicly traded Internet gaming firms to hit the market.  In 2004, PartyGaming - at the time the largest online poker room - was the biggest IPO on the London Stock Exchange.  Party has had to deal with a lot of baggage over the past year, unfortunately. 

Sportingbet said this month that it had moved back into profit after being hit by the online gaming ban in America that in effect wiped out 75% of its business.

Sportingbet incidentally just partnered up with Gambling911.com as part of an advertising deal catering to the Canadian and European markets. 

Playtech - This is one of the hottest publicly traded online casino and poker software companies on the market today.  Its vision to enter the Asian market is actually starting to take shape - and one of the first "Western" firms in the sector to enjoy some degree of success here.

The company this month posted full-year figures showing the company has more than made up for the revenue shortfall following 2006's withdrawal of its licenses from the US market.

The US crackdown cost Playtech around half of its revenues, but chief executive Mor Weizer said the group had responded with the $59.8m (£30.1m) acquisition of rival Tribeca's European poker network and a big push into Europe and Asia.

advertisementPlaytech takes a cut of revenues from its 55 licensees and the Tribeca deal brought eight new ones, including Victor Chandler, Blue Square and Paddy Power.

Mr Weizer said: "Tribeca increased significantly the liquidity we had in the poker network and also the opportunities for cross-selling our casino product. Everyone of them now uses our casino software."

Total revenues rose 86pc to $104m, with casino up 58pc to $74.7m and poker 269pc higher at $27.4m. Profit before tax, excluding $27.7m of non-cash items, rose by $2m to $70m.

Paddy Power - Great marketing will keep this company churning for many years to come. 

Over the past five years Paddy Power has managed to grow its operating profits more than four-fold, from just €17m in 2002 to last year's €72m. Over the same period it has increased earnings (after-tax profits) from 29 cent to €1.25 per share while its turnover has risen from €673m to €2.23bn.

After peaking at over €28 in late October the Paddy Power share price nosedived to just €18 three months later. Although it has since recovered somewhat, Paddy Power has a market value of just €1.07bn at the current share price. Strip out its cash pile of €87m and that falls to about €980m.

That works out at just 13.6 times operating profits. The Independent suggested this month that "For a company with Paddy Power's growth record and the ever-present possibility of a takeover, that's getting on for cheap."

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Christopher Costigan, Gambling911.com Publisher CCostigan@CostiganMedia.com

Originally published March 31, 2008 8:59 am EST