Casinos Are Recession-Proof? Don't Bet On It

Sin stocks such as gambling and tobacco stocks have long been thought to be a hiding place during an economic turndown. It was reasoned that people who liked to smoke, drink and gamble would continue to do so, regardless of the economic conditions. My advice? Don't bet on it. It seems that this time may be different since people do not seem to be paying for their bad habits right now.

Gambling stocks in particular are being hit hard. Revenues in Las Vegas are down almost 10% so far this year, as travelers have simply stopped gambling. The downturn in gaming appears to be accelerating. Revenues at the Strip casinos were down 16% in May, and the take from off-Strip properties in Las Vegas fell over 19%.It was the worst month for the gambling Mecca since 2002.

Spurred by heavily discounted room rates, travelers are still coming to Vegas. They are avoiding the dice, card tables and slots in favor of other entertainment sources, however. And it is not just Vegas either. Pinnacle Entertainment (PNK - commentary - Cramer's Take) recently reported that revenues at its riverboat and dockside casinos around the U.S. were down as well.

Atlantic City reported that monthly revenues for June were down 11%, and all but one of the seaside resorts reported a decline. The only casino with an increase in gambling revenues, Harrah's (HET - commentary - Cramer's Take), admitted that the gain came at the expense of its three other Atlantic City properties.

The soft conditions are reflected in the stock prices for the leading gaming companies. MGM Mirage (MGM - commentary - Cramer's Take) is off over 70% in the last 52 weeks, as are Pinnacle shares. Las Vegas Sands (LVS - commentary - Cramer's Take) is off over 50%.

Wynn Resorts (WYNN - commentary - Cramer's Take) has held up a little better than the rest of the group , down only about 25%. Wynn benefits form its exposure to Macau and the fast-growing Asian gambling markets. Revenues there doubled for Wynn year-over-year, even as revenues at its flagship Vegas properties declined.

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At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.