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Macau Gaming Stocks - January 2008

Approximately two weeks ago, I was inundated with emails from about 20 Macau gaming stock investors (mostly holders of MPEL) asking twenty variations on the same question :

MPEL is tanking, is there something going on behind the scenes that you know about? Should I dump it?

To which I dutifully replied to each and every one, "be patient, it's going to turn around, MPEL is a long value."

Well... what a difference a week makes. MPEL has gained almost 50% from its low of $8+ to a quarter shy of $12 last I looked. MPEL is still down significantly from its IPO price, but it should be back where it belongs ($24-30) after they post more post-AMAX numbers.

Gaming stocks are - theoretically - recession proof. A recession in the U.S. affects U.S. stockholders ability to buy and hold stock, not the bottom line of the company, particularly one that does most of their business in China. Macau pureplay gaming stocks will probably be even more U.S. recession proof than their global counterparts (see MPEL and Galaxy's upward trend in the chart). MPEL, being a Macau pureplay that has one essentially VIP-only property, will be affected far less than properties like Sands Macao that does heavy mass-market business (possibly a reason why LVS is down?). Galaxy Entertainment also may ride through any recession fears, but the Hong Kong market is essentially off the radar of U.S. investors - which could change if/when SJM has their IPO.

I'd venture a guess that the Macau gaming sector is going to bounce upwards regardless of U.S. recession fears, as the sub-sector is somewhat undervalued, and will offer less volatile returns globally as the massive supply is absorbed by increased visitor numbers. Another possibility for growth is former Harrah's investors jumping into other gaming companies as their stock is bought back and Harrah's is de-listed. It would be smart to watch MGM and MPEL for growth opportunities (despite the Monte Carlo fire) for the next quarter. LVS will probably post questionable numbers due to the disorganized soft-opening of the poorly received Palazzo Las Vegas combined with the continued absorption of their Macau VIP business by MGM and MPEL.


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