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The gambling industry is red-hot, and that's creating new opportunities for investors to make money on the best gambling stocks right now.
This week, shares of Caesars Entertainment Corp. (NASDAQ: CZR) were in motion on news the gambling giant might merge with Eldorado Resorts Inc. (NASDAQ: ERI).
The deal would continue a wave of consolidation in the gambling space.
Activist investor Carl Icahn, Caesars' biggest shareholder, has nearly doubled his stake in the company in anticipation of the merger, from 9.8% to 17.8%. It would be wise to follow his money, since he's known for a hot hand when it comes to these kinds of deals.
And you'll also want to follow his hot hand by jumping into the top gambling stocks right now.
Personally, I use the Money Morning Stock VQScore™ to identify the stocks with the most breakout potential.
As an economist and avid analyst in the sports gambling business, I've used the VQScore to identify double- and triple-digit winners. Last summer, we told investors about Dover Downs Gaming & Entertainment Inc. (NYSE: DDE) when the stock had a perfect VQScore of 4.75. Within weeks, it shot up more than 107% on news it had sold to a Rhode Island casino operator.
We've found even more opportunities in the hot gambling sector right now.
This week, three of the best gambling stocks in the business hit our "Buy Zone," meaning they had scores of 4 or higher.
Here's our first, expecting double-digit earnings growth next year.
Gambling Stock to Own, No. 1: Monarch Casino & Resort
Monarch Casino & Resort Inc. (NASDAQ: MCRI) is the first gambling stock on our list, with a VQScore of 4.15. This is not a company that many analysts on Wall Street cover, which makes it the perfect sneaky play to capture double-digit gains in the coming months.
Monarch is a holding company that owns and operates two casinos in Reno, Nev., and Black Hawk, Colo.
Every time I return to Reno, it seems Monarch is building market share. But a focus on its newest Black Hawk casino expansion west of Denver has generated the most buzz about the company.
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Casino operators require an influx of population growth to sustain their profitability and bottom line.
The Colorado population grew by 80,000 from 2017 to 2018, making it the seventh fastest-growing state in the U.S. The Black Hawk location is expected to be completed in late 2019, which analysts project will help grow Monarch earnings by 36.7% the following year.
With people flocking to the Denver region and a moderately strong balance sheet, Monarch can choose to be a buyer or a seller as the wave of gambling consolidation continues.
Our next gambling stock to own is also a Nevada-based resort, and it could easily jump 20% in price by the end of 2019.
Gambling Stock to Own, No. 2: Red Rocks Resorts
When the Supreme Court struck down a federal ban on sports gambling, states rushed to legalize the lucrative industry. At the time, most analysts were hawking the big names in the space - the multinational firms like Wynn Resorts Ltd. (NASDAQ: WYNN) and Las Vegas Sands Corp. (NYSE: LVS).
Instead, we focused on regional banks that offered far more upside, even if that meant staying in the local Las Vegas market. Firms like Nevada Gold & Casinos Inc. (NYSE: UWN) come to mind.
Another name to know in Nevada: Red Rocks Resorts Inc. (NYSE: RRR), the firm behind Station Casinos.
Station owns and operates 10 major gaming and entertainment facilities and 10 smaller casinos in the Las Vegas regional market. It also manages Graton Resort & Casino, an Indian casino in Sonoma County, Calif.
According to TipRanks, RRR stock is rated a "Strong Buy" with a consensus price target of $30.25. That figure represents an upside of 14.1% from Thursday's closing price.
But analysts might be underestimating RRR as a takeover target in the year ahead. No matter what, with a perfect VQScore of 4.75, a 20% jump in this stock wouldn't be surprising by the end of the year.
But this next one might be our fastest-growing gambling stock to buy.
It happens to be a name-brand operator still flying under Wall Street's radar...
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Gambling Stock to Own No. 3: Churchill Downs
If you're looking for a dark horse, there may be no better sports gambling stock to own than Churchill Downs Inc. (NASDAQ: CHDN). The operator of the famed Churchill Downs Racetrack in Louisville, Ky., has been flying under the radar since the U.S. Supreme Court effectively legalized sports gambling across the country.
The company has a rock-solid balance sheet, with an F-score of 8 and an Altman Z-score of 3.17. It's a buyer right now as it expands across the country to bolster its portfolio of gambling centers.
In January, the company purchased the Presque Isle Downs racetrack and casino from Eldorado Resorts for $179 million. In addition to the racetrack, Churchill now owns the Lady Luck Casino Nemacolin, a resort with more than 27 table games and 600 slot machines. It's expected to add sports gambling to the location in the future, given that sports gambling is now legal in Pennsylvania.
And just last week, the firm finalized its ownership deal to take over the Rivers Casino in Des Plaines, Ill. The State of Illinois is expected to legalize sports betting to stop the bleeding in the state budget in 2019.
Jefferies gambling analyst David Katz said that Churchill is out in front when it comes to this booming business. In a recent note, he said: "The legalization of sports betting also represents a big opportunity for businesses, especially those with gambling infrastructure and experience, such as Churchill Downs."
Churchill Downs has a one-year price target of $103.50, which represents 22.4% from Tuesday's current price. But based on its perfect VQScore of 4.75 and its ability to capitalize on the growing legal gambling trend, 50% upside is possible by the end of the year.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.