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Sex, Gambling Stocks Trading on the Cheap

Stocks in this article: FLLRICK

BOSTON ( TheStreet) -- Sex and gambling are America's two seediest industries. This being the U.S., there are stocks for those.

With the stock market at a 16-month high, it's becoming difficult to find undervalued investments. The following two stocks are thinly traded, but extremely cheap. Analysts forecast unholy returns.

Full House Resorts (FLL) owns and invests in gaming properties. It operates the FireKeepers Casino in Michigan and the Harrington Raceway & Casino in Delaware. During the past three years, it has increased net income 95% annually, on average.

Quarter: Fourth-quarter profit totaled $1 million, or 6 cents a share, from $10,000, or break-even, a year-earlier. Revenue nearly tripled. The operating margin turned positive and hit 42%. Full House has $9.2 million of cash and $1.5 million of debt.

Stock: Full House has risen 41% during the past year, more than the S&P 500 Index. It trades at a price-to-projected-earnings ratio of 9.9 and a price-to-cash-flow ratio of 4.9, 69% and 65% discounts to peer averages. It's also cheap based on book value.

Consensus: Only two analysts cover Full House, both rating it "buy." Morgan Joseph expects the stock to soar 72% to $5.25 and Sterne Agee believes it will rise 34% to $4.10. TheStreet's stock model, which rates the shares "buy," expects them to climb to $4.16.

Holders: During the fourth quarter, 10 of Full House's 15 largest shareholders, including several insiders, purchased more stock. Four retained the size of their bets and one decreased its holdings. TheStreet clocks institutional ownership at 31%.

Thesis: Full House's profit margins, with an 83% gross and a 16% net spread, trump those of larger peers such as Las Vegas Sands (LVS) and MGM Mirage (MGM). Furthermore, its stock is cheaper and its balance sheet, with a $7.7 million net cash tilt, is safer.

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