Since the early days of the pandemic, the reopening trade has been a popular way play the anticipated turnaround in beaten up, economically sensitive stocks.
Some groups like restaurants and retailers have recovered much if not all of their 2020 losses. Others like airlines and hotels have many miles yet to travel.
The most recent market downturn spurred by spreading Omicron variant concerns, dealt another blow to many reopening stocks. Bad news for existing shareholders, but good news for traders wanting another crack at the unpredictable reopening carousel.
For traders that prefer lower priced stocks, many reopening names are off the table having surged back above $100. Yet there is still a collection of lower priced reopening plays whose rebounds have been less pronounced—but whose 2022 growth prospects are strong. These are three of the most inexpensive ways to play the reopening trade reboot.
Is International Game Technology Stock a Buy?
Gambling technology provider International Game Technology (NYSE:IGT) has recovered nicely since briefly slipping into penny stock territory in March 2020. But since reaching a peak of $32.95 last month, it has pulled back 28% offering traders a chance to double down on a business that has a bright outlook across each of its divisions.
As pandemic conditions improve, one of the biggest beneficiaries should be casino operators. Travel restrictions that have hampered customer volumes are expected to give way to pent-up demand for gaming entertainment worldwide. With the rebound in foot traffic will come greater demand for IGT’s gaming equipment. This will serve as a second powerful growth driver alongside the company’s fast-growing Digital & Betting segment where revenue was up 37% last quarter. A third growth business, Lottery, should give IGT a solid tripod on which to stand in 2022.
Improvements in profitability and leverage this year have allowed management to reinstate the quarterly dividend. Near record profit margins in a growing revenue environment hold the potential for future dividend increases. For now, though, IGT is trading at 14x next year’s earnings. The longer-term price trend is up which makes the recent low volume dip well worth a roll of the dice.
What is Red Rock Resorts’ Projected 2022 Profit Growth?
Red Rock Resorts (NASDAQ:RRR) has pulled back below $50 taking a breather from an impressive run that saw the resort & casino operator more than double year-to-date through October. The benign correction has presented an opportunity to book a position in one of the country’s premier entertainment brands.
From the Palms Casino Resort to Wildfire Sunset, Red Rock manages some of the most sought-after vacation destinations in Las Vegas. After suffering steep losses in 2020, pent-up demand for private getaways has sparked a very public revival in 2021. As vaccination rates and visitors continue to trend upwards, management’s cost reduction initiatives are expected to result in wider 2022 profit margins.
Red Rock has crushed consensus earnings expectations in each of the last five quarters including last quarter when EPS surged 66%. And while there are lingering concerns about the company’s high debt balance ($2.7 billion), leverage should improve substantially next year as traffic climbs and cost saving strategies kick in.
Analysts are forecasting 64% bottom line growth next year led by the Palace Station, North Fork, and Durango redevelopment projects in which Red Rock has invested heavily. Management’s expectation of a near-term return to 100% occupancy and strong trends in visits from younger travelers support this projection. Given the growth ahead, Red Rock’s 24x multiple should have investors singing ‘Viva Las Vegas!’.
Is Cheesecake Factory Stock Undervalued?
A $25 slice has been cut from Cheesecake Factory’s (NASDAQ:CAKE) share price since it nearly returned to its pre-pandemic high of $67 in April 2021. Like other casual dining restaurant operators, the company has been wrestling with higher food input and labor costs—but has managed these challenges as well as anyone.
A testament to its loyal following, Cheesecake Factory’s sales exceeded pre-pandemic levels last quarter. And although it swung to a $0.65 per share profit, the result fell short of analyst expectations by a nickel, prompting a decline the stock has yet to recover from.
The good news is that investors can now reserve Cheesecake Factory for around $40 per share, or just 13x 2022 earnings. The market is currently underestimating not only the impact of increasing vaccination rates, but a booming off-premise business that accounted for more than one-fourth of revenue in Q3.
Cheesecake Factory should benefit from multiple growth drivers next year. Steadily improving restaurant traffic, mobile ordering, carryout, and delivery are a start. Then there’s the expected launch of a new rewards program and a revamped website which stand to generate higher ticket sizes. Reaching the Street’s forecasted 38% EPS growth should be a piece of cake for this undervalued reopening play.