Monday, April 18, 2005

Degenerate Investing

I've mentioned it a few times, but I've been pretty good lately about drawing out poker profits each month and socking it away in either our savings or brokerage account. Most of it's gone into savings so far but I've been stepping up what I've been rolling into stocks lately. Money is money is money, but it definitely is satisfying rolling some of the crazy casino bonus money I've made into much more tangible things such as stocks, CDs, and savings.

Based on the very basic principle of investing in what you know, my first impulse was to stick to gaming stocks of assorted ilk. That plan got stalled a bit though when faced with the larger issue that traditional gaming stocks have been on a tear over the last few years, with many of them at or near 52 week highs. And yeah, business keeps booming in Vegas, and people will always love to gambool, but it's hard to see a ton of upside with the Harrah's and MGMs of the world.

It's also annoyingly hard to invest directly in poker, as your options are pretty limited (at least until Party floats an IPO, as has been rumored for awhile). WPT Enterprises is about as pure-play a poker stock as you can find, but that one's an odd bird in many ways. Yeah, it doesn't look like the poker bubble is about to burst immediately, but a P/E ratio of 282 isn't exactly overwhelming, or a ROE of 4.9%. It's also a low-float stock that yips and yaws around a lot, as momentum traders move in and out. Maybe they'll roll out their online poker site on time, maybe they'll make tons of money, maybe I'll kick myself for not buying into this one now, but to my monkey eyes this one looks overpriced at ~$15 share, with its underlying fundamentals and future growth potential.

I do, though, really like CryptoLogic, and have been loading the boat every chance I get, picking up shares when it drops below $30. Yes, granted, annoying software interface, but this company has pretty decent underlying fundamentals, with a forward P/E ratio of 20.34 and ROE of 22%. Better yet, the company's got no debt to speak and is sitting on roughly $80 million in cash. It has been on a tear the last two years, running up from 4 to 35, but I think there's still room for growth. Especially given the fact that poker revenues currently account for only 20-25% of sales, with its online casino licensees accounting for the bulk of revenues. The Crypto sites have been doing a good job of growing traffic, so there's some decent upside with their existing licensees, not to mention assorted legislation happening in the UK that could give CryptoLogic a leg up on new potential licensees setting up shop in the UK proper. This stock won't be a ten or twenty bagger but at some point within the next two years will hit $50/share.

I also broadened by definition of degenerate a bit to include "junk", and have been sinking some more bucks into New America High Income Fund. Now, first things first, high yield bonds (or junk bonds) have been on an unprecedented tear for the last two years, and all the macro economic factors point to taking whatever money you've made from them and running, as fast as you can. So why the hell am I not running, and instead picking up more? The New America High Income Fund is a bit of an odd bird for a fund, as it pays out a monthly dividend. Which, for the last year or so, has yielded 10.40% on an annual basis. The share price has stayed pretty stable lately, even with assorted economic specters looming, and I'm basically willing to gamble a bit and give it another 6-9 months to keep churning out nice monthly dividends that I sink into other equities.

I really wish I had a handle on NETeller. The speculative side of me says it's a good buy right now but it was ~700 just a week ago, and there's no apparent reason for the crazy downswing (or, honestly, no real reason for the crazy run-up that proceeded it, either). They just released 2004 results, which were pretty damn good across the board. I really can't see any downside here and they seem pretty uniquely positioned to capitalize off the poker boom without a lot of the normal risk or liability involved. Just for kicks, here are some general numbers from their 2004 AR:

New Daily Signups: 2,072
Total Members as of Dec. 31st: 1,251,031
Average daily receipts from members: $2,348,669
Average Fee per Member Dollar (i.e. what Neteller makes for each dollar you as a member transfer): $0.125

That last one is pretty insane, if you stop and think about it. NETeller pockets roughly 12.5% in fees (paid by online casino and poker sites) of the total amount of every deposit AND withdrawal you make. Which is pretty insane and not a bad business to be in.

I think I may have just talked myself into buying some NETeller stock, volatility be damned.

1 comment:

William said...

Job well done, very informative blog, I look forward to your updates. I have a website I think you would enjoy.

real estate developer home builder