Interesting situation in West Virginia gambling stocks

Expect big moves in Mountaineer Gaming (NASDAQ: MNTG) and Penn National Gaming (Nasdaq: PENN) in the next few weeks, specifically August 11, when residents in West Virginia's largest county are expected to vote on a proposal to allow table games at a racetrack in West Virginia. The dilemma between social responsibility and economic progress is constantly present in many industries. Like usual for gambling expansion proposals, the dissenters on the idea are primarily religious groups.

While I understand the arguments that gambling is not a good thing as it seems pretty undeniable, in my mind, I have typically stood on the pro-expansion side of the fence when issues like this surface. While I have several reasons for this, I believe the most important factor to consider is that many people gamble illegally. This can include anything from underground cardrooms to online gambling, but it does happen. And, in my opinion, it makes more sense to be able to tax and police this gambling activity (via regulated casinos, etc.) than to let it flourish unregulated and not taxed.

How should investors play Mountaineer Gaming and Penn National Gaming? Well, both stocks have had huge run ups in recent months. Therefore, I believe that if the proposal is accepted, upside is probably minimal as the potential upside is "priced in." However, if the proposal is rejected look out below - both stocks will sell-off very sharply because traders who have purchased the stock in recent times to benefit from the bill will quickly move on.