Scores of industries are affected by the U.S.-China trade war, but for one sector — the international casino operators — the pain is localized, CNBC's Jim Cramer pointed out on Thursday.
Gaming giants like Wynn Resorts, Las Vegas Sands and MGM Resorts have all seen their stocks fall under pressure because the companies invest heavily in Macau, an autonomous Chinese territory and gambling haven widely labeled the "Vegas of China."
"You know what? Maybe they deserve every penny of it," the "Mad Money" host said. "In particular, Wynn and Las Vegas Sands have more exposure to Macau ... than they do to the United States. Yep, they're China plays first and foremost."
And with tensions between Beijing and Washington heating up, China, which still wields administrative influence over Macau, could crack down on the U.S.-based operators with higher regulations, license revocations or even boycotts.
Now, with the White House's latest $200 billion tariff proposal, Cramer worried that even if the U.S. emerged victorious in the trade war, these stocks would need time to recover.
"Don’t get me wrong, I’m one of the few people who believes we can win this trade war and perhaps even win it quickly, but the risk-reward with the Macau-oriented casino stocks [is] very much against you," he said.
But the "Mad Money" host didn't want to leave investors stranded. So instead of taking a risk and buying into the international casino giants, he recommended turning to the domestic gaming market.
"The domestic gambling bull market really boils down to two simple stories," he explained. "For starters, we’ve got a roaring economy and a very strong consumer who can afford to burn a little money, which is why we’re seeing a major uptick in gambling revenue in the places where it’s legal."
Better yet, the Supreme Court recently made sports betting federally legal, enabling states like Delaware and New Jersey to seize on what was already a massive, but previously illicit, business.
Cramer estimated that smaller, regional gambling companies could benefit even more than the sprawling hotel-casino operators because of their state-level infrastructure.
Boyd Gaming, for one, owns 24 properties across seven states and has exposure to Las Vegas, the Midwest and the deep South. The company has grown by serving locals instead of tourists and making a series of small acquisitions to build on its reach.
"I think it stands to be a huge winner from legalized sports betting," Cramer said.
Penn National Gaming, a pure play on regional gaming and racing, could also stand to benefit in its 17 areas of operation, which span from California to Florida to Ontario.
"Penn National was already working hard to improve itself with a bunch of initiatives that have been boosting the company’s margins," Cramer said, making note of the company's $2.8 billion purchase of Pinnacle Entertainment.
"Put it all together and I think this is exactly the kind of stock that works in an environment where the U.S. economy’s red hot, but everyone’s concerned about world trade," the "Mad Money" host said.
Kentucky Derby host Churchill Downs is a bit more diversified than the others, with four racetracks, an eight-state casino business, an online betting arm called TwinSpires.com and a horse racing research segment.
"If you want a way to play the legalization of sports betting, it’s hard to think of a better way to play it than a company that owns horse tracks," Cramer said. "The stock caught fire after it reported a blowout quarter in April. ... I think it’s got more upside."
Finally, Cramer flagged Vici Properties, a real estate investment trust that owns the land under a number of hotels, casinos and golf courses. He liked the REIT as "an arm's-length way to play the industry," backed by the safety of a 5 percent yield.
"Here’s the bottom line: the big international casino stocks have been selling off because of their China exposure, but fortunately, we’ve got domestic alternatives that are doing fabulously," the "Mad Money" host said. "Boyd Gaming, Penn National and Churchill Downs are best of breed, while Vici gives you a nice REIT alternative."