Betting on Beaten-Up Casino Stock Las Vegas Sands (LVS)

Problems in China are nothing new, but the latest round of worry in the world’s second-largest economy has caused stocks pegged to the nation’s economic fate to fall precipitously. The latest decline, and likely eventual rebound, in China stocks is something I wrote about last week, when I recommended traders check out the iShares FTSE China 25 Index Fund (FXI).

In Tuesday trade, we saw one China-related company make a nice rebound move off of its recent lows, and that move could be the first sign that stocks pegged to China’s fate are shaking off the negatives in the space.

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The stock I’m referring to here is Las Vegas Sands Corp. (LVS).

Shares of the gaming giant were up 2.32% as of Tuesday’s close as buyers stepped into the beaten-up casino stock. Technically speaking, LVS managed to bounce off that 200-day moving average level at $49.29, and that’s a good sign for the bulls going forward.

What’s important to note here is that after taking a hit of more than 13% last week, buyers are seeing value in the gaming stock at these levels.

Now, because LVS gets much of its revenue from its Macau operations, what happens in the Chinese economy largely dictates what type of earnings performance the company delivers. Fortunately for LVS shareholders, the recent banking kerfuffle and slumping PMI numbers in China isn’t likely to impede Chinese visitors from rolling the dice in Macau.

According to RBC Capital Markets analyst John Kempf, the numbers out of Macau are still strong. In an interview with Investor’s Business Daily, Kempf said, “We think, based on month-to-date numbers, that gambling revenue there will be up 18% to 19% this month. And we still see the region having double-digit growth going forward.”

Kempf went on to explain that Las Vegas Sands caters to China’s mass market gambling segment, which is mainly middle-class tourists from China and elsewhere in Asia. That segment, Kempf told IBD, should be fine unless global economic growth were to tank.

The realization of the situation Kempf describes, along with today’s price action in LVS, means traders could see a very nice move higher off of current levels. I suspect we could see LVS move another up another 10%-15% from current levels over the next couple of months, especially if the latest fears over Chinese growth subside soon.

At the time of publication, Jim Woods did not hold a position in any of the stocks mentioned here.

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