4-Star Stocks Poised to Pop: Melco Crown

Based on the aggregated intelligence of 165,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Melco Crown Entertainment (Nasdaq: MPEL  ) , which owns and develops casinos in Macau, has earned a respected four-star ranking.

With that in mind, let's take a closer look at Melco's business and see what CAPS investors are saying about the stock right now.

Melco facts

Headquarters (Incorporated)

Central, Hong Kong (2004)

Market Cap

$2.05 billion

Industry

Oil and gas drilling

Trailing-12-Month Revenue

$1.7 billion

Management

Co-Chairman/CEO Yau Lung Ho (since 2006)

CFO Simon Dewhurst (since 2006)

Return on Equity (Average, Past 3 Years)

(6.6%)

Compound Annual Revenue Growth (Over Past 3 Years)

220.9%

Cash/Debt

$252.9 million / $1.8 billion

Competitors

Las Vegas Sands (NYSE: LVS  )

MGM Resorts (NYSE: MGM  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 97% of the 373 All-Star members who have rated Melco believe the stock will outperform the S&P 500 going forward. These bulls include powersatch and TSIF, both of whom are ranked in the top 10% of our community.

Two months ago, powersatch touched on several of Melco's positives: "Macau is the fastest-growing gaming market in the world. Insiders own 32% of shares, and earnings are expected to grow at a 52% clip for the next 5 years."

With all of its revenue coming straight out of Macau, our community continues to like Melco as the purest way to invest in the world's largest gambling center. While Las Vegas Sands now derives over 70% of its business from Macau, its higher debt ratios make it a seemingly riskier, not to mention less-potent, alternative. MGM, meanwhile, only has one casino in Macau, the MGM Grand Macau, so many Fools still consider the company a tough turnaround bet on Las Vegas.

CAPS All-Star TSIF elaborates on the Melco bull case:

While the market may be getting saturated in Macau, the GDP and expendable income in that region is showing solid growth compared to the rest of the world. It is also starting to attract more tourists. Quarterly revenue growth has been strong and while debt is high as you would expect from a gaming company with newer casinos, cash flow seems to cover it, and Melco has a P/B of an nearly unheard of sub 1. ... It's new City of Dreams is doing well and it's House of Dancing Water is set to open in Q3. The April report that Macau's gambling revenues jumped 70% in April have done little to support Melco Crown and other casinos during this market correction.

What do you think about Melco, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Melco is a Motley Fool Global Gains choice. The Fool's disclosure policy always gets a perfect score.


Read/Post Comments (4) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 21, 2010, at 11:49 AM, schrrm8 wrote:

    Pretty sure Oil and Gas Drilling is definitely NOT the correct Industry...

  • Report this Comment On July 21, 2010, at 12:19 PM, spokanimal wrote:

    Melco has execution problems, which is why it's stock is languishing. House of Dancing Water is expensive and is failing to learn from others, like Venetian's Cirque D" Soliel production across the street that is drawing tepid crowds.

    Yes, Las Vegas Sands gets 70% of it's revenues from Macau and Venetian draws many more City Of Dreams patrons into it's casino than vice-versa.

    But Sands has also just opened the 2nd most expensive gaming resort ever built... In Singapore... and analysts are saying it could end up being the most profitable (after taxes) gaming resort on the planet.

    S

  • Report this Comment On July 21, 2010, at 1:29 PM, jctaylorucsd wrote:

    I've held this stock since 2008 with an average buy-in of $7.91. However, I've been consistently selling dividends at the $7.50 level when prices are near $7 and at the $5 when prices are sub $5 ... every time these have expired unused (occasionally it's been close). As a volatile stock, I've been collecting quite a premium from this and I haven't been too disappointed with the overall performance ... I've gotten at least $3/share since then in dividends and I still have faith in more upside than down in MPEL long-term.

  • Report this Comment On July 21, 2010, at 1:30 PM, jctaylorucsd wrote:

    Why did I say dividends? I meant covered calls...

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