Wynn Resorts (WYNN) came out with second-quarter earnings yesterday. The company's profits dropped 72% in the period, with weak results blamed on Macau and the slowdown in gaming in China.
It should come as no surprise that China is having a big effect everywhere: in commodities, in gaming, everywhere. Wynn Resorts' stock has fallen 60% in the last 16 months. Despite this, the company's chairman, Steve Wynn, remains bullish on Macau and is betting on a turnaround. I think he will be right.
I do not hold a strong opinion on gaming, but I do look at value and have a macro view of China. As you may know, I am pretty confident about the long-term prospects for the Chinese economy.
In terms of value, Wynn's stock may not be a terrific choice at these levels, but it is getting there. For the record, the stock was recently trading at a price-to-earnings multiple of 21x and had a 2.0% dividend yield. Wynn's market cap is right around $10 billion and it is profitable despite the slowdown.
On the other hand, there is another gaming company that is also a big player in Macau: Las Vegas Sands (LVS). The stock is off by about 40% in the past 16 months so it's been a much better performer than Wynn. In addition, LVS is trading at a P/E multiple of 18x and has a very nice 4.3% dividend yield. The company's market cap is also more than four times that of Wynn's at about $43 billion.
Back to that point I was making on value. I think Las Vegas Sands is the better value play here. If you can get this stock at $50 per share, that looks very attractive to me.
MGM Resorts International (MGM) is another stock in the space. Right off the bat I will tell you that I don't like that MGM is losing money. I have a rule that I don't buy stock in companies that are losing money. I am not telling you not to, that's just my rule. I believe there are enough profitable companies out there with good valuations that I don't need to gamble on one attempting to turn its fortunes around. I'd rather go with what I see as a mispricing by investors and the market. It happens all the time and you can (and should) take advantage of it.
So, no, I wouldn't be buying MGM.
Next up, Caesars Entertainment (CZR). Caesars is a flyer and highly risky. It is potentially facing bankruptcy. A judge recently denied the company protection from bondholder lawsuits. Talk about gambling....Ha! This is a gamble. The stock is trading around $5. Speculate if you want, but this stock is not for me.
Once again, I am not saying that you shouldn't buy stock in companies that are losing money. Many people do and hope for a turnaround. Maybe management changes, maybe the company has a new product about to be launched and it's worth taking a shot or, maybe it emerges from a lawsuit victorious. Who knows? There can be many valid reasons, I just don't do it.
Like I said, there's enough out there in terms of companies that are profitable, but whose stock is down for whatever reason, that I don't need to be gambling on a turnaround.
My choice among the ones I mentioned? Las Vegas Sands at $50 if you can get it.
