Why casino stocks are up big

If you placed a bet on these companies a month ago, congratulations: You've beaten the house.

By Benzinga Sep 10, 2013 2:13PM

copyright CorbisBy Tim Parker


In the past month alone, MGM Resorts International (MGM) is up nearly 9%, Las Vegas Sands (LVS) is up about 9.5%, and Wynn Resorts (WYNN) is up more than 5%.


On Monday, these stocks had another strong day, easily beating an overall market that also saw a lot of buyer interest.


Why such an interest in these companies? Don't discount the power of momentum, technicals and any number of irrational forces, but the fundamental story revolves largely around Macau -- an area of southern China that is the only place in the country where casino gambling is legal.


Macau generates annual gambling revenue of more than $38 billion -- five times more than Las Vegas. Because of the explosion in popularity, Macau is looking to expand to nearby islands -- a bullish story by itself.


There has been a glut of news recently that has fueled the rally. First, privately held Macau company, SJM Holdings said it will build the Palazzo Versace -- a new hotel and casino that will include 700 gaming tables and 2,000 rooms along with a price tag of $3.22 billion.


MGM, Wynn and Las Vegas Sands already operate resorts and casinos in Macau. Why would news of a new competitor send these stocks soaring? Because bringing more people to the region is a win for everybody -- not just a single casino.


Then there was China trade data released over the weekend that looked better than expected, a higher than usual "win rate" at Macau casinos (investors.com) -- the amount of time the house wins instead of the player, and the fact that Japan won the right to host the 2020 Olympics, which may prompt it to legalize gambling.


Finally, Sterne Agee said that its checks in the region indicate Macau gambling revenue is up 26% year over year (investors.com).


But not only were these stocks up Monday, they reached 52-week highs. The continued strength comes from the steady recovery in the industry as a whole. Gaming revenue in Vegas was up 0.31% year over year (fool.com) -- not something to celebrate but the economy still hasn't left a lot of room for a trip to the blackjack tables, so any increase is considered a win.


And finally, the Macau story isn't new. Investors are watching the area closely and all signs point to continued explosive growth.


Disclosure: At the time of this writing, Tim Parker had no position in the companies mentioned.


More from Benzinga

3Comments
Sep 10, 2013 3:46PM
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It seems to be in the DNA of Chinese people to enjoy casino gambling.  Chinese people on average earn much less then Americans, but they somehow find the funds to gamble with.
Sep 10, 2013 4:06PM
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Yeah I've never figured that one out yet either....?

Pretty much, most Asians. exception not quite as many Japanese; Think they like to gamble and game, but are conservative about the amounts of money.

 

And I really question where some of it comes from...???

Sep 10, 2013 4:17PM
avatar
They're up so much because of John McCain.
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