Dec. 15, 2016, may just go down as the final piece of the “Abenomics” puzzle. Early on that morning, Japan’s parliament passed a bill that would finally legalize casinos. This sets the stage for billions of dollars to pour into the country. More importantly, Japanese Prime Minister Shinzo Abe is putting real weight behind his economic revival campaign.
But before you dive into casino stocks to buy, consider the enormous political and cultural opposition that was leveled against Japan casinos.
According to national newscaster NHK, only 12% of the public is in favor of the bill. On the other hand, a whopping 44% opposed the development of gaming centers.
Exact details will still need to be worked out, which means that an actual opening may be several years away.
Nevertheless, this is the substantive piece of legislation that might just work for Japan, Inc. By now, we have a clear understanding of what doesn’t work. Powerful rhetoric hasn’t done it, nor have dovish monetary policies. In order for the Japanese economy to gain meaningful traction, it had to dig deep. Apparently, that meant offending cultural sensibilities.
But for that slide down the slippery slope, Japan — and let’s face it, casino stocks — will receive massive rewards. In a Bloomberg article, investment bank “CLSA estimates potential gaming revenue in Japan could eventually reach more than $25 billion a year.” By way of comparison, Singapore’s casino industry hauls in $4.8 billion annually, while the Las Vegas Strip accounts for $6.3 billion. Macau brings in just under $29 billion.
With Japan opening its doors, they would potentially come within 14% of the sales generated by the world’s biggest gambling locale. That’s not a mere change of scenery. Instead, it is a radical, paradigm-altering revolution that will challenge Japanese mores, but may be the only answer to chronic and debilitating economic deflation.
And yes, it’s an amazing opportunity for casino stocks, which have been lobbying for years for this day to come. Here are four stocks to buy that will rise on Japan’s legalization.
Casino Stocks to Buy: Las Vegas Sands (LVS)
Anyone that knows anything about casino stocks to buy will instantly recognize Las Vegas Sands Corp. (NYSE:LVS). Indeed, it would be embarrassing not to. LVS owns many of the world’s premiere brands across gambling meccas Macau, Singapore and Las Vegas. These include The Venetian, Marina Bay Sands and The Palazzo. Undoubtedly, it must have felt like an early Christmas when Japan casinos were finally green lighted.
To say that LVS was one of the casino stocks pushing hard for legalization would be a gross understatement. Almost three years ago, LVS chairman and chief executive officer Sheldon Adelson stated bluntly: “We will spend whatever it takes.” As if there were any ambiguity as to his bullishness, Adelson specified that “We could pay all cash. We don’t have to, but we will borrow money in a typical mortgage-to-value ratio.”
After years of fretting and worrying about whether Japan casinos would actually become a reality, the government did exactly what LVS and other casino stocks wanted. If that doesn’t make Las Vegas Sands a prime candidate among stocks to buy, I don’t know what is. While actual construction on Japan casinos is further down the line, the biggest roadblock has been eliminated.
I think the best idea here is to not overthink it. LVS stock is one of the top casino stocks and it will benefit greatly from a country in transition.
Casino Stocks to Buy: Wynn Resorts (WYNN)
No stranger to gambling, Wynn Resorts, Limited (NASDAQ:WYNN) is a powerhouse among casino stocks. It owns two gaming centers in Macau, and is of course a renowned presence on the Las Vegas Strip. It’s quite a dynamo in the financial markets as well. For 2016, WYNN turned in a highly respectable 25% in what has been a rough sector in the past few years.
But in order for companies like WYNN to get back to their previously lofty highs, something dramatic had to occur. The legalization of Japan casinos is exactly the card that WYNN was hoping to be dealt. Shortly after the Japanese government made the critical concession, CEO Steve Wynn remarked: “To us, the opportunity is thoroughly Japanese and thoroughly delicious.”
He has every right to be excited. WYNN stock has seen its revenues hit a peak of $5.6 billion in 2013, only to see it shrink to a little over $4 billion. That’s roughly a 29% loss in a span of two years. But with Japan casinos forecasted to generate $25 billion in sales, that’s the equivalent of four Las Vegas Strips that sprouted out of nowhere.
For WYNN, that could very well be a lifesaver, making it one of the more enticing casino stocks to buy.
Casino Stocks to Buy: iShares MSCI Japan ETF (EWJ)
Though it’s obviously not a direct play on casino stocks, investors would be remiss not to consider the exchange-traded fund iShares MSCI Japan ETF (NYSEARCA:EWJ). As I mentioned previously, the legalization of Japan casinos has opened up an entire market of potential. Not only that, once the ball gets rolling, this market would be the second biggest of its kind.
This floodgate of international traffic is exactly what the laggard EWJ needs.
The other point about the Japanese legalization is the timing behind the decision. In a few short years, the world stage will belong to Tokyo when it hosts the 2020 Summer Olympic Games. Although casinos are unlikely to be opened in time for the games, city promoters can advertise their future plans. Visitors who may be enamored by Japan will then have an incentive to come back.
That at least gives Tokyo a chance to actually profit from hosting the international competition. It may also give the EWJ a good-sized kick in the rear.
To be fair, the EWJ wouldn’t classify as a major disappointment, but it certainly wasn’t great. Last year, the ETF brought in over 4%. Against the low of 2016, the EWJ was up nearly 21%. But the reason why so many Japanese companies fail to reach the “stocks to buy” list are the wobbly fundamentals. It’s a lot of two steps forward, two-and-a-half steps backwards. Frankly, it drives investors nuts.
But with Prime Minister Abe firmly doing what is necessary, I’d take another crack at EWJ.
Casino Stocks to Buy: Japan Airlines (JAPSY)
Aside from the fact that there are apparently no “cultural sensitivity” algorithms in the over-the-counter markets, investors will want to check out Japan Airlines Co. (OTCMKTS:JAPSY).
Again, this is not a direct play towards casino stocks. That being said, Japan is an island nation that is fairly isolated from much of the developed world. I gather that most would take the aerial approach — hence JAPSY.
The tailwinds for JAPSY couldn’t be more conspicuous if they tried. Japan casinos will attract Chinese and other global high-rollers on a consistent basis. The upcoming Olympics will inevitably generate as much demand as JAPSY can handle — and I’m sure they can handle a lot. Crude oil prices, which are still at deflated levels relative to prior highs, will also provide a boost to the bottom line.
However, what I like the best about JAPSY is that it’s one of the few financially stable airliners. For example, Japan Airlines has five times more cash than it does debt. That puts it in the upper echelon of global airliners.
One area of concern is in sales growth, where JAPSY is middling at best. But with so many unprecedented and exciting developments occurring, this would be one shortfall that could be quickly remedied.
So when it comes to assessing casino stocks to buy, don’t forget JAPSY. It doesn’t gamble, but it paves the way for those who do.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.