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Is Las Vegas Sands the Right Stock to Retire With?

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Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

Every gambler knows that unless you're a star poker player or a card-counting blackjack player, the best bet in Vegas is to pick the house. That's why big casino companies such as Las Vegas Sands (NYSE: LVS  ) seem like the only sure thing in the gaming world. But just a few short years ago, the owner of the world-renowned Sands brand almost lost it all before making an amazing recovery. So is Las Vegas Sands a smart bet or a gamble that conservative investors can't afford to make? Below, we'll look at how the company does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Las Vegas Sands.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $33.4 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 5 years Pass
Free cash flow growth > 0% in at least four of past five years 3 years Fail
Stock stability Beta < 0.9 3.66 Fail
Worst loss in past five years no greater than 20% (94.2%) Fail
Valuation Normalized P/E < 18 31.02 Fail
Dividends Current yield > 2% 0% Fail
5-year dividend growth > 10% 0% Fail
Streak of dividend increases >= 10 years NM NM
Payout ratio < 75% NM NM
Total score 2 out of 8

Source: S&P Capital IQ. NM = not meaningful; Las Vegas Sands doesn't pay a dividend on its common stock. Total score = number of passes.

With only a pair of points, Las Vegas Sands looks like an unacceptably risky gamble for conservative investors. It's hard to argue with the stock's big jump over the past few years, but the huge volatility that investors have had to go through to earn it is simply too much for most retirees to withstand.

The gaming industry lately has been a tale of two hemispheres. In Vegas and throughout the U.S., companies such as Boyd Gaming (NYSE: BYD  ) and Penn National (Nasdaq: PENN  ) have gone through their ups and downs. But in Asia, hotbeds of gaming activity like Macau and more recently Singapore have vaulted Sands into the stratosphere, along with other big players such as Wynn Resorts (Nasdaq: WYNN  ) and Melco Crown (Nasdaq: MPEL  ) .

But one interesting wrinkle in gaming is what will happen with online poker. With recent calls to legalize online poker in the U.S., both Wynn and MGM Resorts (NYSE: MGM  ) have announced potential partnerships with well-known PokerStars and PartyPoker, respectively, if a change in current law actually happens. That could leave Sands without a partner.

For retirees and conservative investors, though, even all the potential upside for Las Vegas Sands pales in comparison to the stock's risk. Valued at more than 30 times earnings, all it would take is a slowdown in the seemingly unstoppable Asian market to resurrect the same fears that pummeled the stock in 2008 and early 2009. That's not a level of risk that's appropriate for most retirement portfolios.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

Add Las Vegas Sands to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

If you want to retire rich, you need to be confident that you've got the basics of your investment strategy down pat. See if you're on track by following the "13 Steps to Investing Foolishly."

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (4)

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 December 05, 2011, at 10:53 AM, Pkylie wrote:

    Sands China lots #5 and #6 have precious few gaming tables to open with. That's a $3 - $5 Billion investment not generating any ROI.

    As long as Sheldon Adelson remains at the helm, Macau govt. will not let him have his criminal way in Macau.

  • Report this Comment On December 05, 2011, at 12:26 PM, cp757 wrote:

    No one at Motly fool seams to get the real size of the market in Singapore or Macau so I have included this link .

    http://www.todayonline.com/Print/Business/EDC111205-0000030/...

    For ever 100 dollars you invested in March of 2009 you would have 3000 dollars now think if you had invested 5000 or 10000 or ,,well you get the idea. By the way Motly fool has run negatave articals all along and told every one to stay away. In the same period gold has doubled so 100 to 200. Thats ok but LVS is huge.

  • Report this Comment On December 05, 2011, at 2:33 PM, stockpickseven wrote:

    LVS at 10.00 was the greatest buy but you have to look at a 45.00 stock then make up your mind. It will never be that much of a steal again. Long run this will be a great investment for those who like rick.

  • Report this Comment On December 06, 2011, at 11:11 AM, JF125780 wrote:

    I'm sorry Dan, but your article has a lot of holes in the information provided.

    1. Sheldon Adelson is the 7th richest man in the country and when the company was buried in debt during the meltdown he lent LVS the money to survive. (He owns over 50% of the company and the insiders own 72% of the company)

    2. LVS will start a dividend program next year.

    3. LVS is making massive amounts of money now where in 2007 and 08 they were building and deeply in debt, therefore a slowdown in the Asian markets will have no effect on there profits, but would have a temporary effect on their price.

    4. I could go on, but I don't have the time.

    On the negative side Sheldon Adelson is greedy and the insiders are taking filling there pockets with bonuses and stock options.

    Danny Kowkabany

  • Report this Comment On December 07, 2011, at 10:06 PM, cp757 wrote:

    I know what you wanted to point out was the risk investors would take but I want a dividend and huge revenue growth.The dividend, which is coming in 2012 will add to the attractivness of the stock,and an investor can wait for the dividend but I think the stock will be a lot higher since it looks Like LVS is going to build a casino in Japan,Open lot 5&6 in Macau, and double revenues in Singapore.The casino in Japan will be huge for revenue growth. Investors need ideas before the stock goes up.

    http://www.bloomberg.com/news/2011-12-08/japan-may-see-casin...

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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12/19/2014 4:03 PM
LVS $56.44 Up +2.05 +3.77%
Las Vegas Sands Co… CAPS Rating: ****
BYD $11.69 Up +0.28 +2.45%
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MGM $20.33 Up +0.93 +4.79%
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