It is often said that when it comes to gambling, ‘the house always wins.’ However, it can be true that buying casino stocks in a down market can yield solid long-term profits. The key, as with all investments, is to do one’s research and choose wisely.
Not just in Vegas anymore
Regional gaming has been increasing in recent years, driven by states and other governing bodies that view the construction of new casinos as a viable way to stimulate the local economy and add new jobs. As a result, the barriers to gaming or casino construction are gradually being eased. While most of the casinos being built and opened throughout the country are similar to Vegas-style resorts, making a costly trek to Nevada unnecessary, what is becoming even more prominent are Internet casinos and the ability for gamblers to ‘scratch the itch’ from their own homes.
And just as the close-to-home games have proliferated, overseas gaming has recently received plenty of attention. One such success story is Macau, the “Monte Carlo of the Orient.” Macau, just off the coast of China and a quick jaunt from Hong Kong, is the only part of China where casino gambling is permitted and has seen an impressive 12% to 15% annual growth in the last two years. This growth beats that seen in the U.S. market.
There are plenty of big names in casino stocks. Wynn Resorts, Limited (NASDAQ:WYNN) is often considered the ‘gold standard’ for Las Vegas casinos. In a slowly recovering economy, it has generated over a billion dollars in free cash flow in the trailing 12 months. Currently, the stock is at $136, off its high of $161, and far from the low end of a trading range at $95.
Wynn Resorts, Limited (NASDAQ:WYNN) is also boasting some impressive financials. Its revenue growth has slightly outpaced the industry average of 3% and since the same quarter one year prior, revenues have slightly increased by 5%. The stock is up about 30% over the past year, outperforming the rise in the S&P 500 Index during the same period, and should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
Next would be Las Vegas Sands Corp. (NYSE:LVS). Like Wynn Resorts, Limited (NASDAQ:WYNN), the company has seen a free cash flow of $1.6 billion in the trailing 12 months. Currently, the stock is at $58, just under its 52-week high of $62, so one might not want to jump in too soon; rather, keep it on the radar. Once it nears its trading range low of under $40, investors might consider entry. With its smart strategy of paying down its debt before looking to expand, its movement into the Macau expansion was a smart move as previously stated. Shares of LVS rallied last week after the financial results for Macau were released. It also beat revenue forecasts and hiked its dividend by 5 cents.
Another name in this arena is MGM Resorts International (NYSE:MGM). While MGM Resorts International (NYSE:MGM) is heavily burdened with $13.2 billion of debt while only generating around $400 million of free cash flow each year, there are new reasons for investors to be excited. MGM Resorts International is planning a $2.5 billion development on Macau’s Cotai Strip. Specifically, MGM Resorts International (NYSE:MGM) is planning the construction of a 1,600-room hotel/casino that is expected to be completed by 2016. The property will complement the already existing MGM Grand Macau resort. While the new development will cost MGM Resorts International (NYSE:MGM) upwards of $100 million, it is expected to drive increased spending by customers throughout the resort and will likely pay off big in the future. According to Howard Stutz, columnist for the Las Vegas Sands Corp. (NYSE:LVS) Review-Journal, “Analysts expect Macau gaming revenue to jump 18% this year, exceeding a record $38 billion in 2012.”