The significant investment by US casino operators in Macau – a special administrative region in southern China – makes the trade war between the US and China a high-stakes game, as tariffs imposed by both countries have the potential to drastically slow global economic growth, reducing business and pleasure travel demand.
Over the last month, casino stocks with Macau stakes have mirrored investors’ trepidation. The VanEck Vectors Gaming ETF (BJK), which best follows the performance of casinos, is down 6.56% year to date, compared to a drop of just 1.06% for the broad-based S&P 500 Index.
JPMorgan Chase analyst Joseph Greff feels that the sector’s “in line to unimpressive” quarters likely matched investors’ modest expectations and that stock values already reflect the danger to profitability. “In these instances, firms with good development prospects, strong free cash flow production, and solid fundamentals may be disregarded,” Greff said to Barron’s.
Swing traders who wish to gamble that the impact of trade concerns has already been incorporated into the price of casino stocks should consider these three main industry participants.
Wynn Resorts, Limited (WYNN)
Wynn Resorts, Limited (WYNN) is a premium casino and resort operator founded in 2002 by real estate mogul Steve Wynn. Wynn Macau and Encore in Macau, as well as Wynn Las Vegas and Encore in Las Vegas, are its four flagship properties. Macau accounts for nearly 80% of the company’s sales. With the launch of Encore Boston Harbor this summer and the metamorphosis of the company’s Macau casinos into mass-market entertainment meccas, Greff views Wynn as the industry’s value stock selection. Wynn stock has a market valuation of $13.7 billion and a dividend yield of 2.08% as of May 17, 2019. Despite rising over 30% on the year, the stock has lost 12% in the last month as trade war worries reemerge.
Since early December of last year, Wynn shares have oscillated inside an orderly rising channel. In recent weeks, the price has slid approaching the pattern’s lower trendline and 200-day simple moving average (SMA), providing swing traders with an entry option at a critical support level. Long traders should set a profit objective at the upper trendline of the channel and control risk by putting a stop-loss order below this month’s low of $124.80.
Las Vegas Sands Corp. (LVS)
Las Vegas Sands Corp. (LVS) is the world’s biggest operator of fully integrated resorts, with a market capitalization of $49 billion. The corporation owns and maintains casinos, hotels, and conference facilities, with Asia accounting for 90% of its income. The Venetian Macao and Sands Macao in Macau, as well as the Venetian and Palazzo in Las Vegas, are among the company’s best-known resorts. The resort operator outperformed the Street’s top- and bottom-line estimates in the first quarter, thanks to higher revenues at its casinos, hotels, retail and eating areas. Las Vegas Sands has a 4.59% dividend yield and is up 23.29% year to date (YTD), but it has down almost 7% in the last month as of May 17, 2019.
Las Vegas Sands, like Wynn, has been trading in a rising channel since late last year. In early April, the 50-day SMA crossed above the 200-day SMA in what technical experts call a “golden cross,” signalling the start of a new uptrend. Recently, the price has retreated to the channel’s bottom trendline, presenting a high-probability trade opportunity. Traders should try to book profits at the top trendline of the pattern. Place a stop below the May 13 low of $61.36 and move it to the breakeven point if the price rises over the April swing high of $69.60.
MGM Resorts International (MGM)
MGM Complexes International (MGM) is a company that owns and manages integrated casinos, hotels, and entertainment resorts in the United States and Macau. The firm owns prominent resorts like as Bellagio, MGM Grand, Mandalay Bay, Mirage, Luxor, and New York-New York, and has the most hotel rooms and suites on the Las Vegas strip (35,000).
With just approximately 20% of its income coming from Macau, the casino behemoth isn’t as vulnerable to the current trade war as Wynn and Las Vegas Sands. Greff recommends that event-driven investors investigate MGM because of the value it derives through real estate monetization and its anticipated cost-cutting strategy for 2020, which he feels the share price hasn’t factored in. As of May 17, 2019, the company was trading at $26.53, with a $14.25 billion market valuation and a 1.95% dividend yield, and it had returned 9.89% YTD, outperforming the resorts and casinos sector average by 11.57%.
On the MGM chart, a haphazardly formed inverse head and shoulders pattern pops out. Earlier this month, the price retraced to the pattern’s right shoulder and rose from there, indicating that this might be a big support region. The relative strength index (RSI) is well below the overbought level, giving the price plenty of space to surge toward the early February swing high near $30. If the price fails to maintain the March and May lows of $25, cut losses immediately.
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