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Get Your Game On With Gambling Stocks in 2013

Gaming stocks hit the jackpot during the Great Recession, with Wynn Resorts (NASDAQ:WYNN) jumping 130% from 2009 to 2011, Melco Crown Entertainment (NASDAQ:MPEL) gaining 170% and Las Vegas Sands (NYSE:LVS) tacking on a stunning 500% in the same period.

But recent history hasn’t been so kind. MPEL, Wynn and MGM Resorts (NYSE:MGM) have all given up 15% in the past six months.

So does this mean you should avoid the casino, or take it as a sign of a bargain to double down on?

I think it could be the latter.

One headwind for many gambling-oriented stocks like Wynn and Melco Crown was the fear of a China slowdown. In August of last year, Macau officials revealed the slowest growth rate for the gambling mecca since 2009, which gave some investors the jitters.

And for good reason. The Macau region remains a big destination for wealthy Chinese looking to splurge on entertainment, and big bucks have been plowed into the area by major casino operators. If these big-time projects fail to deliver, it could mean serious setbacks for Wynn, LVS, Melco Crown and MGM. Consider that roughly 90% of Las Vegas Sands’ profits come from its Sands China unit that does booming business in Macau.

But the data quickly corrected. Macau’s Gaming Inspection and Coordination Bureau reported that gambling revenue hit a record in new October, then set a new mark again in December with $3.5 billion in gaming sales.

And bigger-picture, the Chinese economy as a whole seems to be avoiding the dreaded “hard landing” some economists had feared. Manufacturing started to rebound in Q4, and January trade data showed the trend is still upwards for this Asian powerhouse.

So don’t give up on gaming stocks just yet.

There are risks, of course. Wynn just posted lower earnings on softness in Macau as the VIP crowd pared back. Melco Crown earnings and sales were similar, running flat year-over-year.

But consider the benefit to both Macau business as well as domestic gambling in Las Vegas should brighter economic days lie ahead in 2013 and 2014. Gaming could take off on a secular recovery for consumers in both the East and the West. Casinos on the Las Vegas Strip reported a 13% increase in gaming revenue during December, and 2012 totals were up over 2% over 2011. That might be a good sign going forward.

Finally, don’t forget that many new properties are still coming online beyond simply the Macau market. One is the Belle Grande, a billion-dollar casino from MPEL that will have 350 table games and almost 2,000 slots in the Philippines. On Tuesday, Melco Crown’s Philippines unit — newly renamed Melco Crown (Philippines) Resorts — announced plans to sell up to 1.2 billion shares in the project, and although the pricing and timing of the share offer weren’t yet set, investors rushed to buy the Manila-listed stock in the hope of gains when the move happens.

This kind of enthusiasm is noteworthy. Yes, it could be buying a top. But if you believe that the China growth story will continue and that brighter days are ahead for the global economy, consider sticking it out in gambling stocks.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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