Casino stocks have witnessed a steep drop amidst record inflation and recessionary fears this year. These headwinds are linked to lower consumer discretionary spending, resulting in massive sell-offs in all major casino and gaming equities. On the flip side, the sell-off has also created multiple opportunities to pick up casino stocks at multi-year lows.

The pandemic was a blessing in disguise for some of the leading casino operators across the globe to rethink their business models. It led to a shift towards more attractive digital offerings, leaner cost structures, and a tight supply environment.

Consequently, casino stocks have become significantly better bets to ride out the current economic downturn than previously thought. Moreover, pent-up demand for travel is also one of the biggest catalysts for casino operators. Additionally, investment advisory firm Macquarie Research states that robust demand for work travel boosts casino stocks. Let’s look at some of the top casino stocks, ranked from best to worst.

MGM Resorts International (MGM)

MGM Resorts International (NYSE:MGM) is the pick of the casino stocks at this time. The rapid recovery in its operating results puts it on course to surpass pre-pandemic levels this year. It has successfully navigated the pandemic-led headwinds and is growing its top and bottom lines by double-digit margins so far this year. In its second quarter, it posted its highest adjusted property EBITDAR, an impressive feat considering the economic climate. Also, with a 14% market share in China, it is in a pole position to benefit from growth in Macau once the zero Covid 19 policy ends.

Perhaps another unique aspect of MGM is that it’s built an incredible online gambling presence without eroding shareholder value. Its iGaming endeavors are held within a 50/50 joint venture with Entain, effectively spreading the risks associated with venturing into the sector. The arrangement will likely pay dividends over time, with its market share continuing to climb each quarter.

Penn National Gaming (PENN)

Penn National Gaming (NASDAQ:PENN) saw its shares skyrocket early on in the pandemic as investors lauded its moves in the online gambling space. Since then, PENN stock has cooled off incredibly from its peak but is still up remarkably from pre-pandemic levels.

Penn is arguably the best casino stock to own at this time, especially during a recession. Due to its geographic diversity and massive drive-in sales flow, its ability to grow its top line aggressively without compromising on its bottom line. Moreover, the lack of exposure to Asia is likely to be a plus and should keep operational costs under control.

It’s done remarkably well in marrying its brick-and-mortar casino business with its digital verticals (via its Barstool Sports acquisition). Consequently, its sports betting operation could potentially be profitable by mid-2023 which is a tremendous achievement. Moreover, PENN stock trades at just 0.8 times forward sales, more than 35% lower than its 5-year average.

Churchill Downs (CHDN)

Churchill Downs (NASDAQ:CHDN) operates racing, online betting, and gaming entertainment businesses in the U.S. It owns the track where the Kentucky Derby event is held each year, with 3050 historical racing machines. Moreover, it has nine retail sportsbooks and one of the most popular online wagering platforms in TwinSpires. Moreover, it also deals with traditional casino gaming, operated in eight different cities.

Churchill Downs boasts an impressive track record of growing its business which may justify its premium valuation. Investing in it is a pricey proposition, with its shares trading at over four times forward sales and 16 times forward cash flows. Moreover, in expanding its business, it is significantly compromised its financial flexibility. Its three long-term debt growth is over 30%, with its debt to equity figure over 900% higher than its 10-year median. Therefore, CHDN’s valuation and debt positioning are causes for concern.