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Stock Picker: Casino Companies? You Bet!

After eight years of winning, the high-rolling casino gambling business rolled snake eyes this year, but Dennis Forst of KeyBanc Capital Markets still has his eyes on some promising investments in the field.

"The group took advantage of very low-cost debt, and then got caught up in the private-equity bubble that burst at the beginning of 2008," Forst explained to CNBC. "The group is down 75 percent year-to-date, and probably well deserved."

From that 75 percent plunge, he expects a nice build among his selected companies.

"All three of these stocks are very beaten down with the group, but either have better prospects or they have a balance sheet that can survive better than most of the competition," he said.

Recommendations:

Topping his list of recommendations is Ameristar Casinos.

"Ameristar has a good balance sheet, very little debt due, they have outstanding properties," he said.

And that's not all.

"Fifty-five percent of the stock that is tied up [is] in an estate that could be for sale if and when the equity market opens up again, and there is the opportunity to do some more consolidation in the industry," he added.

Also on his list is MGM Mirage.

"What I like about MGM is they are highly levered," he said. "They're tied to the Vegas market, which is much underperforming the rest of the gaming market; they've sold Treasure Island, so they've got a fair amount of cash to take them through the opening of CityCenter, which is their big new project on the Strip."

Forst also likes Penn National Gaming, which, like Ameristar, is heavily involved in the Midwest.

"The Midwest is holding up pretty well," he said. "You've got states like Missouri, Iowa, Indiana, that are actually up year-to-date in gaming win, in a consumer market where everything is down in double digits."

Disclosures:

KeyBanc expects to receive or intends to seek compensation for investment banking services from Ameristar Casinos, MGM Mirage and/or Penn National Gambling within the next 3 months.

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