by Will Ashworth | October 21, 2013 10:35 am
It’s no secret that gaming stocks are on a roll this year. The Market Vectors Gaming ETF (BJK), for example, is up over 46% year-to-date — more than double the gains of the S&P 500.
The Market Vectors Gaming ETF is a great way to play the gaming space, too, since no one knows for certain who the big winner will be in ten or twenty years from now. BJK allows you to simply play the field.
Right now, though, it’s pretty clear that Macau is leading the way in the global gambling industry. In fact, Wells Fargo is predicting as much as 20% annual growth for Macau casinos through 2018.
So for those who don’t want to own the gaming ETF as a proxy, Macau-related companies could be some of the best stock to buy now for 2014 and beyond.
With that in mind, let’s take a closer look at three of your best bets in the casino space.
I named Las Vegas Sands (LVS) as a casino stock to buy back in early September and, since then, the news has only gotten better.
To start, Sands China (SCHYY), the company’s 70%-owned Macau subsidiary, reported third-quarter earnings that were out of this world. Revenue improved 43% to $2.3 billion and EBITDA rose 62% to $785.3 million, well ahead of analyst estimates.
And with 9,200 rooms available in Macau, the company holds a huge advantage in this hotly contested gaming market. It controls 40% of the four- and five-star hotels in the region. No wonder Union Gaming Group analyst Grant Govertsen told Bloomberg:
“Sands has been very strong, especially on the mass-market segment … The company has the biggest footprint in non-gaming entertainment which helps to draw a lot of family holiday-makers.”
Quite simply, it’s in the right place at the right time. If you’re betting on casino stocks, LVS has to be on your short list.
Next up, investors should also consider Wynn Resorts (WYNN). While Sands China has more rooms in Macau, Wynn makes more from its gambling. According to Motley Fool gaming expert Travis Hoium, Wynn’s tables generate $25,060 per unit per day in winnings vs. an average of $16,283 for the Sands’ four Macau properties.
That’s a big deal if the anticipated growth Wells Fargo and others see for Macau materializes.
Plus, Wynn also has a more balanced income statement, boasting a decent amount of revenue here in the U.S. In fact, WYNN generated 29% of its revenue stateside in the first six months of the year and its Las Vegas operations enjoyed a 65% increase in adjusted property EBITDA during Q2.
That region could make a big difference if the U.S. economy decides to move into high gear — and if Wynn can snag casinos in Massachusetts and Philadelphia.
Our last pick admittedly isn’t a stock, but it’s a great alternative if you aren’t a fan of the first two stocks on this list.
See, the First Trust Hong Kong AlphaDEX Fund (FHK) owns the 40 top-rated stocks from the S&P Hong Kong BMI universe — a collection of 385 Chinese companies whose stocks are listed on the Hong Kong exchange.
Take a quick look at its holdings and you’ll see that the four remaining casino operators in Macau are all held by the fund. Galaxy Entertainment Group (GXYEY) is the top holding at nearly 6%, MGM China Holdings (MCHVY) comes in at 5.3%, Melco Crown Entertainment (MPEL) weighs 2.4% and SJM Holdings (SJMHF) makes up nearly 2%.
Plus, the fund uses both value and growth factors when ranking potential stocks – and that’s translated to impressive returns since February 2012.
If for some reason you don’t like LVS or WYNN, FHK gives you a perfect alternative.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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