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Here's Why You Should Buy Macao Casino Stocks Before October

By Rich Duprey – Sep 19, 2020 at 11:00AM

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Odds are good this is where the resorts start their recovery.

The stocks of Macao resort operators have been beaten down by the coronavirus pandemic, but they could be on the brink of a big rebound.

Investors might want to buy the stocks of Las Vegas Sands (LVS 1.06%), MGM Resorts International (MGM -0.77%), or Wynn Resorts (WYNN 2.76%) while they're still down 20% to 40% year to date because October could be when they pivot to growth once again.

Actors performing Chinese dragon lion dance

Image source: Getty Images.

Are the dark clouds breaking?

Because the coronavirus originated in China, the gambling companies there experienced the fallout from its effects much earlier than many other businesses did. Beijing closed Macao's integrated resorts for two weeks in February. But when they reopened, even with social distancing, tight controls were still placed on people traveling into and out of the only place in China where it's legal to gamble, and those restrictions remain today.

With tourists and gamblers unable to visit, gross gambling revenue fell by more than 90% from last year for five consecutive months. It is cumulatively down over 82% this year through August.

It's doubtful September's numbers will be any better when the Macao Gaming Inspection and Coordination Bureau updates the figures in two weeks, but October could be the turning point.

Ready to party

Oct. 1 marks the start of China's Golden Week holiday, which runs through Oct. 7. Begun in 2000 to bolster domestic tourism, it's when nearly all companies, government agencies, and schools shut down to allow people to travel.

There are actually two such holidays, one in late winter that coincides with the Lunar New Year, and then the one in the fall for China's National Day, which commemorates the founding of the People's Republic of China.

Last year, some 782 million tourists stayed within China during the seven-day holiday, a 7.8% increase over 2018, while another 7 million people traveled abroad. While that growth rate was the lowest in a decade for China, it still marks a massive migration of people, and that bodes well for casino operators.

Rooms with a view

Occupancy rates for Macao's hotels are starting to rise. According to a survey by Morgan Stanley, five of the 23 hotels it tracks are fully booked for Golden Week:

  • Galaxy Entertainment Group's (GXYEF 2.95%) Ritz-Carlton Macau and StarWorld Hotel.
  • Melco Resort & Entertainment's (MLCO 4.64%) Morpheus at City of Dreams Macau, and Studio City.
  • Las Vegas Sands' Four Seasons Macau.

While that's far below the 19 hotels that were booked solid a year ago, the tourist-visa restrictions Beijing is easing into to improve travel won't go into effect until Sept. 23, and that should drive occupancy rates higher, according to the report.

Through July, Macao's occupancy rates are near 21% in 2020, a year-over-year decline of 70%, according to Macao's tourism board, with room rates down 30% from the year-ago period.

But the Golden Week celebration just might be when the resort operators see a rebound.

Ready to shine

Las Vegas Sands derives 60% or so of its revenue from Macao, but suffered a 98% drop last quarter as gambling all but dried up in the city. Its stock is still down 28% this year, even though shares have rallied 49% from their March lows. In fact, almost all of the gambling companies are still well below where they traded at the end of 2019.

Casino Operator

Year-to-Date Change (Decline)

Change From 52-Week Low

Las Vegas Sands

(28%)

49%

Galaxy Entertainment

(4%)

62%

Melco Resorts & Entertainment

(23%)

73%

MGM Resorts

(31%)

290%

SJM Holdings (SJMHF -0.23%)

16%

91%

Wynn Resorts

(43%)

122%

Data source: Yahoo! Finance. 

Macao is down, but not out, and only now is China acting to ease the pressure the region has been under so the gambling companies can grow once again.

The Golden Week holiday won't be a magic wand that makes all the bad go away, but it ought to mark the start of the real recovery. Analysts estimate the rest of 2020 will still be depressed, but expect revenue to double next year and then rise 20% the year after.

October could be when the race begins, and investors may want to get in before the casinos have left the gate.

 

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Las Vegas Sands Stock Quote
Las Vegas Sands
LVS
$43.07 (1.06%) $0.45
Wynn Resorts Stock Quote
Wynn Resorts
WYNN
$74.17 (2.76%) $1.99
MGM Resorts International Stock Quote
MGM Resorts International
MGM
$33.32 (-0.77%) $0.26
Melco Resorts & Entertainment Limited Stock Quote
Melco Resorts & Entertainment Limited
MLCO
$7.89 (4.64%) $0.35
GALAXY ENTMNT GROUP ORD Stock Quote
GALAXY ENTMNT GROUP ORD
GXYEF
$5.94 (2.95%) $0.17
SJM HOLDINGS LTD ORD Stock Quote
SJM HOLDINGS LTD ORD
SJMHF
$0.40 (-0.23%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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