Important Updates for Investors
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The
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Despite the U.S. national debt, there is a silver lining for income
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Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| The
Hot Casino Market Has These Gaming Stocks Booming |
Published: April 9, 2007
The world's most popular casinos are all located along a single strip of land that's less than 11 square miles in size. A total of 24 casinos featuring nearly 2,800 gaming tables hosted around 22 million visitors last year. Combined, those players generated more than $6.9 billion in gaming-related revenues. In these tightly crowded casinos, gamers regularly wait for more than an hour for a seat at the blackjack or baccarat tables. Once there, punters routinely play all through the night.
I'm not talking about Las Vegas or Atlantic City. When gaming started on this small peninsula back in 1850, Las Vegas was still a tiny outpost in the Nevada desert and Atlantic City a sleepy seaside town on the Jersey shore.
Instead I'm talking about Macau, a small former Portuguese colony that was handed back to Chinese control in 1999. In 2006, Macau overtook the Vegas Strip to become the world's largest gaming market -- the famous Vegas Strip generated roughly $6.6 billion in revenue last year, about $300 million less than Macau. Early estimates suggest that Macau's gaming revenues could surge to as high as $8 billion this year. The average card table in Macau generates nearly six times as much revenue as a similar table on the famed Vegas Strip.
The catalysts for all this growth: rising wealth in China and several new upscale casino developments. Thanks to rapid economic growth and a rising middle class, more consumers in gambling-hungry China can now afford to visit casinos and leave some of their disposable income behind. And since 2.2 billion people live within a short five hour flight of Macau (compared to just 410 million in the same radius of Vegas), Macau has a huge pool of potential gamers to draw upon.
From 1961 through the end of 2001, the Macau gaming business was essentially a monopoly. A company controlled by billionaire business magnate Stanley Ho was the only firm permitted to operate casinos in the territory. That all changed in 2002, when the local government opened up the region to competition.
Since that time, several American casino operators have entered the market with opulent Vegas-style casino resorts. The Las Vegas Sands' (NYSE:
LVS) Sands Macau was the first American casino to break into Macau, occupying a plush location next to the busy Hong Kong Ferry terminal. It will soon be joined by the $1.8 billion Venetian Macau resort. Not far, famed Vegas developer Steve Wynn opened the Wynn Macau last year to much fanfare. MGM Mirage (NYSE: MGM) also has a stake in the region, constructing a billion-dollar waterfront resort. The opening of these massive new properties has only served to accelerate Macau's already explosive growth.
But it's not just Macau where the gaming business is booming. Las Vegas gaming revenues continue to post healthy growth, and the addition of several new casinos outside Vegas helped drive Nevada's overall gaming revenues to record levels. And then there's Atlantic City, where the palatial Borgata Casino continues to remain popular with the players -- helping to rejuvenate the city's appeal as a gaming destination.
Meanwhile, several new gaming jurisdictions have recently popped up around the country, including
"racinos" in markets like Florida, Louisiana, and West Virginia -- these are basically a combination of horse racetracks and slot machine parlors. Finally, new developments in Connecticut and New York have also attracted their fair share of attention, while gaming markets on the Gulf Coast continue to rebound from the devastation of Hurricane Katrina.
And while most gaming operators have enjoyed record success in recent years, these stocks have also benefited from a wave of private equity buyouts -- the gaming industry has been a hotbed of merger and acquisition (M&A) activity over the past few years. Most recently, Harrah's agreed to a $28 billion buyout offer led by two private equity firms, and Station Casinos is being acquired by its own management team in a leveraged buyout deal.
All this is great news for shareholders. Not only should casino operators see continued strong growth, but several could also be potential targets for acquisitions and buyouts -- usually at generous premiums. And it's not just the casinos that should benefit; firms that supply slot machines and other gaming-related equipment are seeing strong sales growth as well.
With these points in mind, my staff and I went in search of firms that look to benefit most from the casino boom. In the text that follows, we will analyze a few of the best plays in the business.
Important Note: Throughout the remainder of this article, editor Paul Tracy and our research staff provide in-depth analysis on their five favorite gaming stocks. However, in order to view the remainder of this article, you'll need to subscribe to our premium newsletter --
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Good investing!
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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Paul Tracy
founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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