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Gaming investments not for the squeamish

Analysts advise a cautious approach when it comes to casino stocks

When casinos first came to the Mississippi Gulf Coast, they were viewed with a mixture of skepticism and optimism.

Both views can be argued.

Many Mississippi residents considered casino stocks for the first time. Perhaps they thought of them as a less-risky form of gambling, and a way to invest in “local” companies, although some casinos are only local facilities of bigger gaming companies.

Since that time the value of the stocks have, for the most part, had a rocky ride before settling on their current less-than-stellar place. Casinos traditionally have not been an investment avenue for the squeamish.

No one knows this better than the casinos themselves. Andy Bourland, director of public relations for Beau Rivage Resorts, readily characterized gaming stocks as volatile.

“Gaming stocks,” Bourland said, “are an aggressive sector of the stock market. They have more volatility than traditional stocks.”

However, Bourland also said that “gaming stocks have historically been a strong performer.”

That point can be argued, too, though. Casino stocks “have been a very difficult group to make money in,” said Naomi Talish, casino analyst for Merrill Lynch, “but there are some selective opportunities.”

Some mainstream investment firms will tell a potential client up front that they do not follow casino stocks, and as such are not in a position to professionally recommend them. It`s not that they necessarily think that gaming stocks are a bad investment; they simply don`t regularly research or evaluate them for investors. Apparently gaming stocks, to some firms, aren`t hot. They`re not “sexy” like, for instance, Roth IRAs or Real Estate Investment Trusts.

However, if one were interested in putting money into casino stocks, most brokers will purchase the stocks upon request. One thing that most investment experts do agree upon, however, is the need to diversify one`s investment portfolio. Even if you are an aggressive investor with money to burn, few advisors would recommend placing all of your faith, or your money, into one segment of the market.

Mississippi market

is closely watched

Gaming corporations with facilities in Mississippi have gotten the attention of those who watch the industry. It is widely accepted in many circles that Mississippi is on its way up as a casino gaming destination, a strong third behind Las Vegas and Atlantic City. It stands to reason that investing in companies with Mississippi-based casinos might be a good idea.

Particularly now.

Hilton Corporation seems poised to take over Grand Casinos. Mirage Resorts has almost completed Beau Rivage Casino Resort. The players on the local field are bigger than they have ever been before. Could other, smaller casinos benefit?

Maybe. But they might also wilt under the competition. The word on the Coast is that everything will change when Beau Rivage opens its doors.

Smaller casinos that were satisfied with a small slice of the Mississippi Gulf Coast gaming pie may now find themselves with a very small slice of pie indeed.

If nothing else, the attention the Mississippi Gulf Coast has received from these big players is at least a symbol of the faith they have placed in the area to support their level of investment.

“I think that the recent interest by Hilton Corporation in the Coast is worth considering [when evaluating gaming investments],” said Bourland.

When looking at casino stocks, one must consider what is going on in Las Vegas and Atlantic City. Las Vegas, in particular, is not considered by some to be the best investment right now.

“The main [market] drivers are having a tough time in the market,” said Michael Soll, gaming research associate for Bear Stearns & Company of New York. “Las Vegas has an oversupply in hotel rooms and an undersupply in air service.”

Current estimates are that Las Vegas will build an additional 21,500 hotel rooms between now and the year 2000.

Soll said that analysts are recommending gaming stocks to “long-term investors who are interested in select companies who have access to inexpensive capital and excellent management and developed track records.”

That is, the bigger, proven companies.

Soll pointed out that the casinos have no intention of watching their market share diminish. They traditionally seek improvement through two methods: consolidation or expansion. Hilton`s planned purchase of Grand Casinos is a good example of the former. In the latter, there are three markets that are chiefly being considered.

Detroit is one of them. According to Soll, both MGM Grand and Circus Circus are licensed to build in Detroit now, and there is also interest by the Greektown Group, a mostly unfamiliar name in the casino gaming market.

Detroit is attractive due to limited competition. Fewer casinos mean bigger pieces of pie to each casino. The development in Detroit could also affect casinos on the Mississippi Gulf Coast. Merrill Lynch`s Talish pointed out that Circus Circus may choose to commit more resources to its facility in Detroit, rather than Bay St. Louis.

Atlantic City is still being considered as a expansion site by several casinos. Mirage Resorts, Circus Circus and Boyd Gaming are planning facilities there. However, Soll believes that operators and investors are looking more conservatively at Atlantic City.



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