Doubling down on Casinos

by The Investment U Research Team

In the past two weeks Las Vegas Sands (NYSE: LVS) and MGM Mirage (NYSE: MGM) have increased over 88% and 218% respectively. That’s a considerable amount of “doubling down.”

Both of these companies have seen their share prices drop over the past year and a half –losing over 90% of their value. But over the past few weeks these two have been staging a considerable comeback.

The market has opened in negative territory again today, and yet MGM is up another 16% and LVS 8%. So what is the cause for this newfound renaissance in their stock price?

The simple answer is debt.

As our credit markets have improved, these two highly leveraged casino conglomerates have been able to refinance and reach debt concessions with their largest creditors. It’s assured the markets that these two companies aren’t on the way out, or off to bankruptcy court.

It hasn’t hurt that shorts have loaded up on these stocks.

In addition, while their main competitor Wynn Resorts (Nasdaq: WYNN) has shed almost 80% of its value of the past year, its share price hasn’t dropped below $14.50. And even with a downgrade from Oppenheimer and others, it still represents a ‘best in breed’ in terms of stability.

Alexander Green compared one of the casinos mentioned above in his premium service to a rodeo steer or bucking bronco, and we are in complete agreement. But we’d like to extend that analogy to the casino group.

While they may be a good long-term buy, the ride in the short-term is going to be filled with ups and downs. How high or how low is debatable, and it’s assured that many will be gambling on their movements.

Companies mentioned in this article: LVS, MGM and WYNN.

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