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Rather than being suckered by the glamour and neon lights at casinos, savvy investors looking for stocks to buy now are putting the odds on their side and betting on "the house."
That's because casino stocks are promising big returns for shareholders.
Plus, the gaming industry is still in the early stages of what should be a sustained recovery from the financial crisis that had lightened gamblers' wallets.
But identifying the best casino stocks to buy now involves more than a weekend jaunt to Vegas.
Due diligence on gaming stocks now requires a look at gambling's biggest hotspot – Macau, a former Portuguese colony that is now a special administrative region under Chinese rule.
Macau – Where the Casino Stock Action Is
Macau gaming revenue reached a staggering $33.5 billion in 2011, according to Macau's Gaming Inspection and Coordination Bureau, a 42% increase over 2010.
That means Macau's gamblers bet more than all the top 20 U.S. casinos combined.
"To put this year's gross gaming revenue and growth rate into perspective, total gross gaming revenue in Macau will be approximately 5.5 times the gross gaming revenue generated on the Las Vegas Strip, while the rate of growth in Macau will be roughly 10 times the rate on the Las Vegas Strip," Union Gaming Group's Macau-based principal Grant Govertsen wrote in a research note.
And it's not slowing anytime soon. Macau's gaming revenue is expected to jump 20% – 30% in 2012, according to the Las Vegas Review-Journal.
But get this: According to Jim Murren, CEO of MGM Resorts International(NYSE: MGM), even though 60% of visitors to Macau are from mainland China, they represent just 1% of China's population.
No wonder Macau is adding infrastructure to handle an influx of even more gamblers, especially in Macau's Cotai region, the rough equivalent of the Las Vegas strip.
The government is doubling its immigration-handling capacity at the China-Macau border and relaxing visa restrictions for frequent bettors.
And the Hong Kong-Zhuhai-Macau Bridge, slated for completion in 2016, will cut travel time by car from Hong Kong from four to five hours to 30 minutes.
The more successful casinos can generate 20% to 25% in annual earnings growth over the next two to three years, Credit Suisse Group AG (ADR NYSE: CS) Asian gaming analyst Gabriel Chan told Barron's.
The Best Casino Stocks to Buy Now
Here are three companies worth a wager:
- Las Vegas Sands Corp. (NYSE: LVS)
LVS features one of the best line-ups of casinos in Macau, with the second-largest market share.
The company opened Phase I of Sands Cotai Central in April and has added nearly 6,000 hotel rooms to the market this year.
What's more, LVS has submitted development plans for six integrated resort developments on approximately 200 acres on the Cotai Strip.
LVS also has the Marina Bay Sands in Singapore and is perfectly positioned for the potential legalization of gaming in new Asian markets such as Japan, Taiwan and Korea.
From 2006-2011, the company increased net revenue at a compound annual growth rate (CAGR) of 33.6%, while net income has jumped by 252% during the same period.
LVS also just raised its dividend for an enticing 2.2% yield.
- Wynn Resorts Ltd. (Nasdaq: WYNN)
Steve Wynn knows the gaming business.
From 1973-2000, Wynn was chairman and CEO of Mirage Resorts, where he developed and operated prominent casino/hotel projects, including the Bellagio, The Mirage and Treasure Island.
He ventured out on his own by opening the luxurious Wynn Las Vegas in 2005, the Encore in 2008 and the Encore at Wynn Macau in 2010.
But he's just getting started.
His company, Wynn Resorts, has submitted an application for 52 acres on the Cotai Strip, where additional development is likely.
From 2007-2011, net revenue rose at a CAGR of 18.3% while net income skyrocketed 212%.
Steve Wynn and his wife, Elaine, own 19.7% of the total shares outstanding.
WYNN is known for paying out fat dividends. The company just issued a special dividend of $8 a share and raised its annual dividend to $4 a share.
WYNN's premier high-end global gaming brand and strong balance sheet make the shares attractive.
- Bally Technologies Inc. (NYSE: BYI)
BYI represents a picks-and-shovels play in the gaming business.
It manufactures and markets casino-style video games and also offers technology solutions that provide gaming operators with a range of marketing and accounting tools.
Bally spends massive amounts on research and development, and its new, technology- driven games, including "Grease" and "Michael Jackson King of Pop" machines,are helping drive profits skyward.
Earnings for 2012 were $2.45 per share, up an impressive 35% from 2011.
In its first fiscal quarter of 2013, Bally blew away estimates when it reported record earnings of $32.5 million or $0.77 per share – up a whopping 71% from a year ago.
With cutting-edge technologies and worldwide reach, BYI is a good bet to continue its recent growth and a good choice as one of the gaming-related stocks to buy now.
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Where to Wager in Macau
- Daily Finance:
On Value Investing and Macau Casino Stocks
- Las Vegas Review-Journal:
Macau gaming revenues hit $33.5 billion in 2011, no slowing seen