The casino sector has been one of the biggest recovery stories from the economic recession. The casino business operates at significant leverage, and during the downturn this fact came back to bite them during a time of plummeting revenues. Some people said Vegas was dead, that the American consumer was going to change to become more responsible forever and that these stocks would never return to near their previous levels. Well, it seems old habits die hard (with a lot of help from Macau!).
At the bottom of the market in March 2009, Las Vegas Sands (LVS) traded down to $1.38, and will close today at a shade below $50. Wynn Resorts Limited (WYNN) went as low $14.50, and trades today above $118. MGM Resorts International (MGM) hit $1.81, and now is surging above $16. That is not to say I was buying these guys up at the bottom for long-term holds, but I have not let their troubled past cloud my vision for their future.
While Vegas has made a solid comeback, the real growth story that went neglected with the casinos was in Macau. LVS has been the most exposed to Macau and thus the strongest of the bunch. However, you shouldn’t sleep on MGM. The company’s Chairman & CEO James Murren made a very impressive appearance on CNBC this morning talking about how MGM has engineered its return to glory and why it still has significant room to grow. I came away from watching that appearance (below) more confident than ever in my bullish view on the casinos and MGM.
The casinos often take turns making moves, often more-so than any other sector. LVS has obviously been the name with the most notable comeback and is the leader of the group, with WYNN not far behind in that regard. MGM has always been more of a laggard within the group, but more recently there has been great opportunity for a catch-up trade in MGM.
We LVS as it put in an upper level wedge pattern and broke out today, but MGM has been my favorite of the two. Early in December we listed it here as one that could definitely play catch-up and easily make it back to 52-week highs. After today’s breakout, it looks like it will that level sooner rather than later. While it would be prudent to take some profits at that level, I believe it can continue to run to $22-24 this year. I also believe LVS can eventually break through its 52-week highs above $55.
*DISCLOSURE: Long MGM, LVS
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