The owners of MGM Resorts (NYSE:MGM) stock have had to weather a harsh economic storm in the form of the novel coronavirus. Major kudos should go to anyone who held the shares through the worst of times; thankfully, the best of times may lie ahead for those who invested in MGM stock.
The possibility of a second coronavirus wave has prompted some regional lawmakers and regulators to shut down their casinos. That caused MGM’s share price to flounder for much of the summer.
However, a turnaround in fortune appears to be in progress for MGM. A famous billionaire has taken a sizable stake in the struggling casino operator, and the long-term owners of the shares are rejoicing. As we dig a little deeper, perhaps we’ll find that buying MGM stock isn’t such a gamble, after all.
A Closer Look at MGM Stock
As I already mentioned, 2020 wasn’t all roses and rainbows for MGM stock. The bears came out of hibernation in February and March of this year, as they suppressed the sharer price all the way down to its mind-bending 52-week low of $5.60.
As part of a broader “recovery trade” in the markets, MGM returned to $23 in early June. That rally was dented, though, with MGM’s shares retreating to the $15 area in late July.
So, did the bears have the final word? Not necessarily. On Aug. 10, MGM gained 13% due to a significant catalyst. Moreover, the stock reclaimed the $21 level, putting the bulls back on the front foot.
What – or more accurately, who – could have provided such a powerful boost to the MGM stock bulls?
Diller the Bear Killer
If you’re familiar with the name Barry Diller, you’re not alone. Here are three highlights from his illustrious career:
- Current chairman and senior executive of IAC/Interactivecorp (NASDAQ:IAC)
- Current chairman and senior executive of Expedia (NASDAQ:EXPE)
- Chairman and CEO of Fox (NASDAQ:FOXA) from October 1984 to April 1992
In other words, Diller is a big shot. When he talks, people listen. And when he puts his money where his mouth is, investors should sit up and pay attention.
If Diller’s thesis regarding MGM stock is correct, then the bears should probably go into hibernation right about now. In a real headline grabber, IAC announced that it had obtained a 12% stake in MGM Resorts that’s worth close to $1 billion.
Diller used the announcement as an opportunity to vaunt IAC’s achievements, particularly its $3.9 billion cash position and its lack of debt.
That’s important because MGM’s shareholders will want to know that IAC, as a significant investor, is itself a sturdy company with a solid balance sheet. And that’s something for the bears to worry about as their hold on MGM stock appears to be slipping.
It’s Diller Time
Diller’s no slouch in the entertainment business. Plus, he knows a thing or two about adapting to market trends. The current trend is online entertainment, and Diller envisions MGM Resorts as a strong player in this area:
“What initially attracted us to MGM, besides its leadership in leisure, hospitality and gaming, was an area that currently comprises a tiny portion of its revenue – online gaming… there is a digital first opportunity within MGM Resorts’ already impressive offline businesses, and with our experience we hope we can strongly contribute to the growth of online gaming.”
It’s a savvy move for Diller and IAC to jump headfirst into the online-gaming niche. At the same time, Diller evidently seeks to maintain a foothold in traditional, offline gaming. He’s effectively getting two for the price of one with MGM Resorts, and his stake is likely to provide robust returns over time.
The Bottom Line on MGM Stock
By investing in MGM Resorts, Diller’s getting the best of both worlds: a recognized traditional-gaming brand and an emerging power player in online gaming. Investors can copy Diller’s move by taking a position of their own in MGM stock, even if they don’t also buy $1 billion of its shares.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
