Wynn Resorts is One Gaming Stock to Watch

The VanEck Vectors Gaming ETF (BJK) is fresh off a two-year high, as gaming stocks continue to outperform

Apr 26, 2017 at 2:23 PM
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It's been a standout year for gaming stocks, as evidenced by the price action in the VanEck Vectors Gaming ETF (BJK). Not only is the exchange-traded fund (ETF) up more than 17% year-to-date at $39.73, but the shares hit a two-year high of $39.76 earlier today. Plus, of all the sectors we track, "Gaming" is the only one with all corresponding stocks trading north of their 80-day moving averages. Given the amount of skepticism levied toward the gaming sector, this rally could be far from over.

According to our internal sector scorecard, compiled by Schaeffer's Senior Quantitative Analyst Rocky White, the nine "gaming" stocks we track sport an average year-to-date return of 25%. While analysts have issued upward revisions to their ratings over the past 12 months, only 59% of brokerages have issued "buy" ratings -- leaving room for more bullish notes to come down the pike. Elsewhere, short sellers have been in covering mode over the last 12 months, but the median short interest level, as a percentage of overall float, is almost 11%. This translates into almost a week's worth of pent-up buying demand, at the stocks' average pace of trading. 

One name in particular that's been benefiting from short covering is casino stock Wynn Resorts, Limited (NASDAQ:WYNN). Specifically, WYNN's nearly 47% year-to-date advance has coincided with a roughly 10% drop in short interest since mid-December. However, there's still plenty of sideline cash to help fuel WYNN's fire, considering it would take, based on average daily volumes, almost four sessions to cover the remaining 7.7 million shares that are sold short -- roughly 10% of the stock's float.

Plus, analysts have started issuing some well-deserved bearish brokerage notes, after last night's better-than-expected earnings report and news that Wynn Resorts, Limited's board approved a $1.5 billion Las Vegas theme park. Union Gaming, for instance, raised its rating to "buy" from "hold," while Morgan Stanley, J.P. Morgan Securities, and Stifel all raised their price targets. With the majority of analysts still maintaining a tepid "hold" recommendation, the door's open for more upgrades to draw fresh buyers to the table. At last check, WYNN stock was trading up 6.3% at $125.67 -- and fresh off a two-year high of $127.20.

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