Could Gaming Stocks Rally in 2013?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
China’s Macau, the world’s largest casino market, saw casino revenue rise 13.5% to $38 billion in 2012. As a result, casino stocks and U.S. based gaming stocks are greatly outperforming a bullish market during the first trading day of 2013. Might this be a sign of a casino rally in 2013?
*As of 12:25 ET
Along with strong revenue, overall traffic continues to rise in the world’s casino capital. The three stocks above are those that have the greatest presence in this region of the world. And because of such weak performance in 2012 it is very possible that investors take the news, assume strength, and then buy the stocks believing them to be undervalued in 2013.
The three major gaming stocks above might very well be attractive to investors in 2013. But in order to develop a potential buying point for these stocks, let’s take a look at each three, and determine the likelihood of gains in the new-year.
- Right away, after data was released for Macau, analysts begun to say that Las Vegas Sands had the most to gain. It’s no secret that Las Vegas Sands has the best presence in the region; is the most prepared in terms of efficiency and operational strategy; and that they have weathered the storm of new smoking regulations fairly well. Furthermore, the company is a solid fundamental performer. The company saw double digit revenue growth last quarter, and has operating cash flow of nearly $3 billion. The company very shareholder friendly; they recently paid a $2.75 special dividend and is in talks to increase its dividend by up to 10%.
- Wynn Resorts has the same market catalysts that are present at Las Vegas Sands; however it might have more catalysts. The company not only trades with more attractive metrics (price/sales of 2.16), but is seeing a number of developments that apparently are not priced into the stock. The company is embarking on a substantial development project in Cotai and may challenge Caesar’s for the sole casino license in Boston. If these potential catalysts occur then this is a stock that could trade significantly higher.
- MGM Resorts has very moderate growth, is a volatile company, and has lost 85% of its value over the last five years, but is remarkably undervalued. The company’s debt overload has been a real reason for concern over the last few years. But recently, the company refinanced $4 billion in debt for lower rates; which might prove to be a great catalyst in 2013. The company has several development projects, both globally and in the U.S., and should follow the industry if it continues to rise.
While each of these companies are unique with individual catalysts, the key to a potential casino stock rally is emerging markets, and more specifically Macau. Most who do not follow the space believe the upside lies in Las Vegas. And although it’s important, Las Vegas has become highly volatile with near breakeven growth. The real upside is in those areas of the world with growing economies and large populations, such as China.
Macau has the potential to create a massive rally in the valuations of these major gaming stocks in the new-year. Most had expected slower growth in the region after a series of corruption charges and changes to regulations, but the region continues to outperform. In my opinion, each of these companies will outperform the market in 2013, which is due to underperformance in 2012.
The question is which casino stock will be the best performer in 2013? The U.S. is volatile and other regions such as Singapore continue to perform badly. Therefore, the upside lies in the company that best performs in Macau, and capitalizes on the demand. According to analysts, its Las Vegas Sands, but then again, all have a presence, and analysts have been wrong before. Therefore, I suggest your own due diligence, and a definite suggestion to pay close attention to this space, because as of now it does look as though this could be an industry on the rise.
BrianNichols has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!