Las Vegas - Casino stocks: great value or sucker bets?

With all my research into hotels and forthcoming trip to Vegas, I thought it might be fun to make my first bet: to purchase a smallish amount of Casino stock. Maybe USD $500 tops.

Are there any great values out there right now? I've noticed a fair amount of inexpensive but recommended downtown and off-strip hotels (Main Street Station, etc) are owned by Boyd Gaming (BYD) and that the stock is down to ~$9 from a ~$14 52 week high. And it's down tens of dollars from the last 3-4 years or so. Can't imagine it's going down to zero. Is it truly in freefall and/or being managed poorly or just suffering from the current economy and local housing conditions? Or if it did continue to plummet, would you consider it a good opportunity to bulk up on it?

What would be the better casino stock buy? Something like BYD where, presumably, the hotels are paid for and who offer great value to the low roller. Or one with luxury properties that cater to those who do well in nearly any economy? I'm guessing that luxury products still sell well in a bad economy. But then maybe I better be looking at LVMH (products)? Or some other luxury hotel chain (service) like Four Seasons?

Wondering if I should put $500 into BYD or something more reliable like QQQ (Nasdaq cubes). I'm mostly a mutual fund guy and don't pick individual stocks. But I thought I'd like to start building a small individual stock portfolio and have just one gaming stock in it (if gaming stocks make any sense at all). Wasn't sure which stock has a better chance of doing well in a tepid US job economy, or rather, has a rosier outlook for recovery when and if the US job market ever comes back to its former levels. Not sure the fundamentals support this, despite how well the Dow itself is doing right now.

Or if the stock market experiences another major drop / crash--is there any one Casino stock in particular that you might grab if you were sitting on the sidelines? And which is better? A stock that owns mostly casino hotels, or a broader hotel market if I was looking at one travel-related stock to put in my small stock portfolio as a long-term hold. Something I could dollar-cost average into and not try to time the market (much).

Frankly, I rather play the money at a table @:-).

If you're deciding between that and an index fund, you have no business trading casino stocks. :D

Right now, the entire casino industry is a high-risk investment. Is it possible to score a big hit on them? I guess so. Then again, can the stocks go down to zero? They can, and do. There are multiple casino companies that either have gone or are going under. IMO, I suspect there isn't a single DT casino that is making enough money to service their debt.

Boyd caters to Hawaiians DT and locals in the rest of LV. The upcoming jacked-up airfares from Hawaii are going to hurt the DT market. That's a minor point - here's the big one. Consider that the housing bust has hit Vegas so hard that probably 1/3 or more of the people there are broke on paper - they're underwater on their houses beyond the value of their other assets. When your house is about to be foreclosed on, you're not going to be playing at the Boyd properties, no matter how good the comps are.

In the end, someone will make out like a bandit from the current casino market conditions. Odds are, it won't be you or me. If you want to get your feet wet with individual stock purchases, I can think of about 20 different sectors that would be better first choices - lower risk, better chance of reasonable return, more stability.

Casino and gaming stocks are just about the worst options out there right now.

Thanks guys.

While I do not own any casino stocks, I would take a more optimistic outlook than what has been expressed on this thread. Specifically, I am seriously considering stocks in gaming companies with exposure to the market in Macau. I think the continued growth potential is tremendous. I've been there twice, and I haven't seen anything quite like it.

Yesterday's Wall Street Journal published an article on this subject that you may find interesting:

http://online.wsj.com/article/SB10001424052748703648304576265321156379198.html?K EYWORDS=macau

From the article:

These days, a casino holiday can include all the pampering of a luxury resort. But when it comes to selecting gambling stocks, investors shouldn't be afraid to get their hands dirty.

With Las Vegas still hobbled by hotel overbuilding in the boom, the real action for U.S. casino operators is in Asia. The likes of Las Vegas Sands and Wynn Resorts both generate the majority of their profits in the region, where local governments limit the number of casinos and wealth is increasing quickly. Macau, in particular, is ideally located near Hong Kong, where it draws a steady flow of Chinese tourists.

The track record isn't good. I wouldn't touch them even if I wasn't local.

While I do not own any casino stocks, I would take a more optimistic outlook than what has been expressed on this thread. Specifically, I am seriously considering stocks in gaming companies with exposure to the market in Macau. I think the continued growth potential is tremendous. I've been there twice, and I haven't seen anything quite like it.

Yesterday's Wall Street Journal published an article on this subject that you may find interesting:

http://online.wsj.com/article/SB10001424052748703648304576265321156379198.html?K EYWORDS=macau


From the article:

Good advice....if you are to buy casino stocks, look at the ones that have more exposure to Macau than Las Vegas, such as WYNN and LVS.

Although probably not the best bet, MGM at $13-14 is not too bad, since the 1-year target should be $19.00.

The problem with gaming stocks is that, for many of them (including MGM), they have enormous debt loads that limit their upside. To make a reasoned judgment on their potential future value requires a detailed analysis of just how much they owe, as well as who holds the debt. You then have to judge how flexible those entities will be as far as repayment and/or refinance options.

Those are judgments that are extremely difficult for people in the investment industry to make, let alone a neophyte investor.

For a simple(r) example, The Palms (not a publicly traded firm) has an enormous outstanding loan that has been flipped a couple or more times in the past few years. Right now, that loan is held by the same company that owns Caesar's Entertainment. (Caesar's owns the competing Rio right across the street.) For the time being, they are content to let The Palms struggle on its own. If the prospects for The Palms start to brighten, that's when they might jump in and use their debt power to force a sale or equity grant on terms unfavorable to current The Palms equity holders.

As far as Macau goes, things will be fine there until the Chinese government wakes up one morning and changes the rules to the severe disadvantage of foreign firms. Given China's record of hosing foreigners in other industries, that's a question of "when", not "if".

The problem with gaming stocks is that, for many of them (including MGM), they have enormous debt loads that limit their upside.....As far as Macau goes, things will be fine there until the Chinese government wakes up one morning and changes the rules to the severe disadvantage of foreign firms. Given China's record of hosing foreigners in other industries, that's a question of "when", not "if".

Agreed, debt is a major concern with this sector, so you should stick to the best-of-breed, which for me would mean Wynn (which I own, but not sure I would add more at current levels), or LVS. LVS has hit a home run in Singapore, but they seem also to be attracting some undue attention from regulators in both Singapore and Macau, which is worrisome. MGM is gaining control of their Macau joint venture, which should boost revenues, but Vegas is still a drag. BYD could be interesting, but it's purely domestic, with a customer base that is getting hammered by fuel and food inflation, so I would take a pass for now.

When China restricted visas to Macau, and later started playing games with some of the Cotai parcels, both events were a reminder that there is definitely a risk in doing business (or investing) in Macau, or any other Chinese venture. So far, it has paid off, though. :D

If you want broad exposure to the gaming sector, you may want to look at the BJK, which is an ETF that invests in casinos companies, tech providers like IGT, horse tracks, etc. It invests globally, with positions in companies like Genting, SJM, Wynn, etc.

I think the best advice I ever received was "buy what you know".

If you can't explain the company and its associated stock to someone and why its a beter deal than its competitors, the possible liabilities and risks its exposed to, and the potential upside and downsides and what would be the catalyst for either, then you don't understand enough about the company to be investing in it. You can still buy the stock, just acknowledge you are gambling then instead of investing.

As I used to live in Vegas, I invested in Vegas. LVS was doing well & was up pretty well over the past year & a half - but, recently, going down.

MGM is low enough that there's "room for growth"

MPEL has been a great winner & is below $10/share - but not as much space to go, IMHO - I don't think it'll go much higher, but has been a good peformer over the past month or so...

I think gaming stocks are a tough one to invest a lot in - but I do expect them to grow (and I'm not a professional trader - just a few K ever couple of months...)

With LVMH - I wish I could go back in time (and if anyone invents a time machine, March 2009, here I come!) and invest in them - they're a solid company. Would love to have gotten in on Priceline a while back as well. In early 2009, due to my job in Vegas, I did some consulting on market conditions in the gaming sector for a research firm in NYC. One of the analysts I talked to said that Priceline was going to blow up over the next 2 years & I should buy and buy a lot (and this was when the economy was still pretty bad - being in Vegas, it was hit harder than anywhere else) - I didn't buy & now I wish I did!