For better or worse (probably better) I don’t have much experience with neurostimulants or hallucinogens. Or any, really. My brain ties knots around itself as it is and if I ever tried any of that I’d probably trip out and be a danger to myself and everyone within a 2 mile radius. But from what I’ve heard and read, methamphetamine makes you feel invincible. This is what tech investors are all feeling right now. They’re all on a monetary-induced meth bull craze, and that’s more than just literary hyperbole. Meth drives up the levels of dopamine in your brain to levels higher than any other drug can touch. I would not doubt that the dopamine levels in the brains of Microsoft, Tesla, and Apple investors are at extremely high levels right now.
It’s making them about as confident as your average meth-head. Nevermind that the second biggest economy in the world has been basically shut down for a month now. The stocks just keep climbing. Under normal circumstances, China grinding to a standstill would probably cause maybe a tiny bit of selling. Not now. Too much dopamine. I’d love to see some research done on the dopamine levels of Wall Street traders at the extremes of bear and bull markets. That would be a really interesting study.
In the gambling sector, it’s the riskiest growth stocks in the United States that are getting the biggest hits of speed. Eldorado is up 14x in 5 years. Penn is up 56% in a year. Caesars 52%. Boyd 44%. The fact that they just keep climbing attests to the probability that almost nobody is even so much as taking profits in these stocks. That’s what happens at the tail end of euphorias when everyone piles into the same stocks because they don’t want to get fired for missing all the spectacular gains that clients of other investment houses are getting. It’s a sign that the bear is getting all its ducks in a row for an eventual mauling.
For my money, it’s time to say goodbye to growth stocks for the foreseeable future. Keeping a small percentage as a game to see if you can spot the top is OK, but don’t risk losing your gains by waiting for a fall to sell. When China shuts down and almost nothing happens to capital markets, something is wrong. True, I don’t think COVID-19 will be cataclysmic by itself and I’ve said this, but not even a pullback? That’s crazy.
Buy low sell high means what it says. Buying low in these times may be even harder than selling high. One of the best buying opportunities now is in Sweden. Betsson looks really attractive at these levels, and should be one of the top positions in a gambling stock portfolio for the next 5 to 10 years. Yes it could go down from here if and when a global reset happens, but it’s been so beaten down, down 62% from 2015 highs, that it’s hard to see it going all that much lower even in a meltdown.
Let’s work this out logically. Betsson is profitable, has a strong balance sheet with miniscule debt, and its stock is near all time lows. If the lows are in from February 3 at SEK40.64, then my call to buy on February 7 would be a pretty good one. We’ll see. Jury’s out on that. Anyway, let’s assume the worst, a complete meltdown in the global economy, and Betsson crashes another 60% to SEK22.54. I am also assuming that Betsson stays profitable and keeps paying dividends. If you’re in for the long haul with dividend reinvestment, you’ll regain all those losses in 3 to 4 years. At 22.54, the dividend yield would be around 17%.
Normally investors would look at a dividend yield like Betsson’s and assume something is wrong. At 17% they’d assume the sky must be falling on it. This would be the case if the company was drowning in debt, unprofitable or barely profitable, or had other serious structural issues. Betsson has none of this. It makes money just fine and pays half of its profits to shareholders. Unless Europe goes totally nuts and seizes the assets of gaming companies in desperation, Betsson will at worst tread water.
How can we be so sure that it will keep paying dividends? Because it’s growing outside of the Nordic countries, and its fall can be blamed mostly on tough gambler protection laws and other regulations, with some overvaluation at the top. Betsson has a whole page on the features of its new player protection systems using AI, self exclusion, deposit limits, gaming overviews that allow players to see if they’re engaging in risky behavior, plus an external whistleblowing system. This is serious stuff. Despite all that, active players are up 3% and deposits are up 10%.
Besides the Nordic countries, Central Eastern Europe and Central Asia (CEECA) is way up at 37% year over year. Rest of World is small, but up 56%. Key numbers in Sportsbook are growing, with 14% growth in live betting events.
Meanwhile, operating expenses are down overall despite cost of revenue rising by 7.7%, indicating inflation. The company is getting leaner out of necessity. The situation is the exact opposite with growth stocks, the main thing going for those being that their stocks are going up because of top line optimism which requires more spending and reckless behavior. In December Betsson made a move in South America, acquiring 75% of Brazilian sportsbook Suaposta. Emerging markets are a good place to be when the US gets in trouble, as dollar denominated debts will fall in real terms for these countries together with the dollar. As for debt, Betsson has net debt of only SEK186M, 2.4% of its market cap, and that’s with the stock near all time lows!
There is every reason to buy Betsson now, and keep it as one of the top holdings of a gaming portfolio, without worrying about the bottom not being in yet. If you’re concerned about this, you can scale in over the next month or two, but I wouldn’t even worry much about chasing here. Over the next few years it won’t matter.
