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Motley Fool Issues Rare “All In” Buy Alert
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The stock market started the week on the wrong foot, as investors focused on threats to the health of the global economy in key areas like China. The Dow Jones Industrial Average (^DJI -1.45%), Nasdaq Composite (^IXIC), and S&P 500 (^GSPC -1.54%) all dropped about 1.5%, giving up a portion of their November gains.
Index
Daily Percentage Change
Daily Point Change
Dow
(1.45%)
(498)
S&P 500
(1.54%)
(62)
Nasdaq
(1.58%)
(177)
Data source: Yahoo! Finance.
Casino stocks have been hit hard over the past three years, as the ongoing impact of the COVID-19 pandemic has held back resort operators from realizing their full potential. Over the weekend, many major casino resort companies got good news from a key governmental regulator, but as you’ll see below, it wasn’t enough to lift the entire industry.
One of the biggest potential problems that many major casino resort operators have faced is the pending status of licenses in the Asian gambling capital of Macao. Las Vegas Sands (LVS 1.11%), Wynn Resorts (WYNN 4.36%), and MGM Resorts International (MGM -2.27%) all have operations in Macao that generate significant revenue. Melco Resorts & Entertainment (MLCO 9.86%) has even more concentrated exposure to Macao.
On Monday, these companies got word from the government of Macao that they would receive renewals of provisional gambling licenses to continue operating there. Six companies received the licenses, including the four companies above, along with Macao’s SJM Holdings and an entity owned by Galaxy Entertainment Group.
In some cases, the response among shareholders was predictable. Melco saw the biggest gains, rising 10% on the day, and Wynn posted a 4% rise. However, Las Vegas Sands didn’t get as big a lift, as its stock climbed just 1%. And for MGM, the news didn’t lead to gains at all, as its stock closed the day down 2% from where it started.
There’s no doubt that the news out of Macao was a positive for every company with a renewed license. To varying degrees, all four of the U.S.-listed stocks above have made massive investments in property development and operations in Macao. The threat of losing that investment introduced significant risk for investors, so the ability not to worry about that risk through 2033 will be a nice respite.
Yet even with the news, casino resort operators still face challenges. An uptick in COVID-19-related lockdowns in China has sparked waves of protests, and that introduces the new threat of more aggressive action from the Chinese government to control dissent. In such an environment, travel to Macao could be affected, even though the gambling capital has recently taken steps to loosen COVID restrictions for visitors.
At the same time, gambling is a discretionary expense for travelers, and weakness in the global economy looks like it could get worse before it gets better. Even if more people could visit Macao, it doesn’t mean they will if their finances don’t warrant it.
Interestingly, the answer to casino stock woes could lie elsewhere. MGM reported extremely strong revenue from its Las Vegas Strip properties in the third quarter, even as its sales at its MGM China unit dropped 70% year over year. Nevada and other U.S. gambling centers haven’t hesitated to relax COVID-related restrictions to restore traffic, so the domestic market could be more attractive for casino stocks for a while.
Yet with Las Vegas Sands divesting its former Strip holdings in 2021 to favor its international opportunities, a strategic reversal away from Asia is practically impossible. That will make it vital for Macao’s reopening to go well in order for shareholders to claw back their losses since 2019 — and it could lead to further disparities in stock performance within the casino resort industry.
Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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