Tuesday, January 16, 2007

Gaming Stocks

In response to Dan Carty’s article “A Closer Look at Casino Stocks,” I would like to comment that many gambling and leisure stocks have done quite well so far this past year. His pick of MGM in October was a good play with the development of Project CityCenter in Las Vegas along with strong earning outlooks for the future quarters. The MGM Mirage stock has moved from $35 in August 2006 to the upper $60s - low $70s this past week. MGM ended up having increased third-quarter profits which some analysts had predicted and very well paid off for many investors.

On the other hand his speculation on Las Vegas Sands Corp. is a little off, though he is correct that it is trading at 59x price to earnings (which is now probably higher), which is quite high compared to other gaming and leisure stocks. I question why he and other analysts want to keep backing off LVS. This stock has only gone higher over the past year though it is priced high and has only two open casinos, but people need to focus on the development of this companies holdings in Macau, which is a stronger gambling area than Vegas with less casinos. LVS is now at $108 and Dan Carty mentions that a pullback is possible if the stock hits $105. The recent news about LVS receiving its proposal to develop another plot in China is supposed to add $34 a share to this stock when adequately valued. So, if I was going to speculate I would say this stock should level out around the $120s, but as far as I know with this stock, an investor can never be certain.

These gambling stocks keep rising and many people would say that a pullback is upon us, but with the amount of money the Chinese tend to gamble, all the speculation in Macau, China has and may continue to pay off for investors who buy into the major players in China (LVS and WYNN).

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