Monday, January 15, 2007

1) Introduction - Gambling on Gambling

Ever wondered how Warren Buffet made 44 billion dollars? Well, he invested his money in the stock market targeting undervalued companies and now is the second richest man in the US. The market has changed a little since he first started in the 1960s, but there are still many undervalued companies and a whole heap of wealth to made. The purpose of my blog is to research stock news and speculation and to see how it affects the price of a given stock and the trading volume. I will venture out from this topic and also inquire into several other blogs that discuss hot stocks for 2007 and see how this has affected their prices over the first couple of weeks into the New Year. I would also like to research economic news and other blogs to see how they affect the stock market in general, not just on a stock by stock basis. The majority of the investing public knows that when a stock has positive news the stock price will go higher and the number of shares traded will increase because people want to own a stock that has a higher earnings outlook, therefore, a higher current price. This can be seen everyday in the market and usually if a person visits the website CBS MarketWatch they will have a list of the biggest winners and losers of the day. The winners have good news while the losers have bad news, or either of these have at least good/bad speculation. Since we know how news affects stocks I do not need to go into any further details regarding this, but what I do want to cover is speculation and analyst recommendations.

I would like to focus this post on the speculation surrounding gaming stocks and the recent success that has followed. The stocks that I will spotlight are Las Vegas Sands Corp. (LVS), Station Casinos, Inc. (STN) and Harrah's Entertainment, Inc. (HET). These three stocks have all increased dramatically in recent weeks due to speculation by gaming analysts. Harrah’s Entertainment Inc. had news of a possible buyout offer that substantially increased the current price of the stock. The news came in October that there was a buyout offer that took the stock from $65 to $76. The price increased due to the confirmed positive news that the company was valued higher than the current stock price indicated. Though, the most interesting speculation around this news was that the offer still undervalued the price of the company. So, over the next couple of months Oct. – Dec. 2006 many analysts tried to pinpoint the value of the stock, thus finding the true value of the company. The speculation was correct and more buyout offers were made at higher prices and the stock climbed to $83. Thus, over the period from Aug. to Dec. the stock jumped from $60 to $83 a 38% increase in stock value. The people who listened to the speculation or had even speculated themselves before the company announced anything happened to make a pretty good investment.

The next stock that had buyout speculation and is still in the mist of the entire news surrounding it is Station Casinos Inc. The buyout news was a little different than Harrah’s because it was led by the management team, where as Harrah’s was offered by an outside company. The news took Station Casino’s stockholders by surprise, but it led to a jump from $68 to $83. The news brought speculation that this buyout could be similar to Harrah’s and that it would bring in more offers from other companies that might send the stock even higher. In this case, the speculation has not paid off as the stock has cooled down over the past few weeks, idling just around $80. Though, we can not entirely tell if the speculation will or will not pay off because with Harrah’s the offers came in over a several month period and for Station Casinos it has only been a month. If an investor visits this site they will notice that after the news of the buyout many brokers suggested to just hold the stock due to the new higher valuation of the stock.

Lastly, I would like to discuss the news surrounding Las Vegas Sands. LVS happens to be the richest casino company in the world, primarily due to their major plays in China and other highly sought after development sites in Asia. If an investor looks at a yearly chart of this stock they will notice a constant increase over the course of this period. The increases are mainly due to positive news about their holdings in China and the speculation by analyst that the casinos in China will be a lot more profitable then Las Vegas Casinos, which makes LVS a lot more valuable. The recent news I would like to discuss is the speculation surrounding the development of a proposal to build a resort on a small island close to Macau, China, where their other projects have been under development for some time. The recent news can be read here.
In this article, it confirms that the news was speculated before the company released it’s announce. It states that an analyst’s report caused the stock to surge and the company’s official announcement, a day later, confirmed the news. Therefore, paying off 10% for those investors who had access to the report. The news was issued on January 11th, 2007 and I am sure there will be more news to come surrounding this new development.