Investing in gambling stocks can be great, if you do it right. I'm here to help you sort the sugar plums from the lumps of coal.
The big box under the tree
Any investor in gambling stocks needs to start with Las Vegas Sands (NYSE: LVS) (and some would argue end there). The company owns The Venetian and The Palazzo in Las Vegas, but the real reason to invest in Las Vegas Sands is in Asia. The new crown jewel of CEO Sheldon Adelson's empire is Marina Bay Sands in Singapore, a dazzling resort overlooking downtown. During its first full quarter of operations the resort had $241.6 million of adjusted property EBITDA and an incredible 49.7% EBITDA margin.
Macau has also been driving Las Vegas Sands since it opened Sands Macau in 2004. The company has since added The Venetian Macau and Four Seasons Macau and is building another resort across the Cotai Strip. Las Vegas Sands isn't the cheapest stock around, but sometimes spending on an extravagant gift is the right thing to do.
Stocking stuffers
If Las Vegas Sands is a little too expensive for your taste you may want to consider Wynn Resorts (Nasdaq: WYNN) or Melco Crown (Nasdaq: MPEL), which both have operations in Macau.
Wynn is known for its shimmering high-end resorts filled with high rollers and a CEO who has built some of the most iconic resorts in the world. Like Las Vegas Sands, its Vegas operations have struggled, but Macau is holding its own. Macau net revenues jumped 49.7% in the most recent quarter, and EBITDA was up 54.4% to $198 million. Wynn also has plans to join the fast-growing Cotai Strip with a casino expected to open in 2015.
Melco Crown is already on the Cotai Strip and has seen improving results there. It isn't the best operator in Macau, but EBITDA margins are improving and Melco is the closest thing we have to a sale rack in Macau.
If you're looking to keep your investment dollars closer to home, regional operator Penn National Gaming (Nasdaq: PENN) is making all the right moves in the U.S. It made an entrance into Las Vegas recently, buying the M Resort's debt (which will eventually be converted to equity) and its recent earnings trounced expectations. It won't ever be the highflier Las Vegas Sands is, but Penn is as solid as they come in gambling.
There's coal all over my stocks
Not all gaming stocks are welcome gifts this holiday season. Once upon a time, MGM Resorts (NYSE: MGM) was on every investor's wish list. The company owned some of the best developments in Las Vegas and had a prime strip of undeveloped land smack in the middle of the Strip. Dubai World even invested more than $5 billion in the company by buying 50% of CityCenter and MGM stock. But the party in Las Vegas ended when the recession hit, and now MGM is struggling to survive with $12.6 billion of long-term debt.
This coal could turn to gold if an online poker bill passes, giving MGM the chance to leverage its great brand power, but that's looking less likely every day.
The black dust from Las Vegas is spreading to regional casino operator Ameristar Casinos (Nasdaq: ASCA), which took down its "for sale" sign last week, crushing the stock. The company is struggling with $1.4 billion in debt and the continued expansion of gambling throughout the country. As competition heats up, I'm afraid this lump of coal could soon start a fire.
Playing chips at every casino
Gamblers wanting to play more than one hand at a time may want to look past casino operators to the companies supplying equipment. In the case of Gaming Partners International (Nasdaq: GPIC), that includes the $1.5 million in chips that someone stole last week from the Bellagio. Gaming Partners is having one of its best years ever, and with a price-to-earnings ratio under 10 who can argue with its value? But prepare yourself for a bumpy earnings ride because casino chips sell in bunches.
Foolish bottom line
Placing your hard-earned chips on the right stock isn't as hard as it seems. Just sidestep the guys selling coal on the streets, stuff the stockings with a little diversification, and spend most of your money on the biggest gift under the tree.
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