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Melco Crown: Invest in Asia's Las Vegas
10/10/2013 10:00 am EST
Our latest recommendation takes us to Macau—Asia's Las Vegas; we've made big short-term gains with this stock in the past and I think we'll do so this time around as well, suggests global expert Nicholas Vardy, editor of Bull Market Alert.
Back in 2007, revenues for Las Vegas and Macau were pretty much equal. Today, Macau's gambling revenues have soared to six times those of Las Vegas.
That means Macau generated more revenues in 2012 ($35.6 billion) than the entire US gaming industry.
That includes Las Vegas, Atlantic City, and Indian casinos—combined. Analysts at CLSA expect Macau's revenue to double to $77 billion by 2017. Put another way, Macau's growth alone is adding a new Las Vegas every year.
Melco Crown Entertainment Limited (MPEL) operates two casinos in Macau: a mass-market casino called City of Dreams in Cotai, and Altira, a VIP-focused casino. MPEL also owns 60% of Studio City in Cotai, which is scheduled to open in 2015.
Earlier this year, I thought that the economic slowdown in China might impair Macau's long-term growth.
But any impact has been muted. And with Cotai's casinos opening up next year, annual growth rates approaching 25% per year are back in the cards.
And Melco is spreading its wings. In the Philippines, it is developing a $1-billion casino resort in Manila. It is also investing $630 million in two Russian casino resorts.
In its biggest project outside of Macau, Melco plans to invest more than $5 billion in Japanese casino resorts, once it receives permission to build resorts in Tokyo and Osaka.
If Japan opens up the market, it could easily grow to $10 billion, to $15 billion, or more and quickly become the world's second-largest gambling market. No wonder HSBC Bank just upped its target on MPEL to $43—30.74% higher from its closing price on Friday.
So buy Melco Crown Entertainment. But be aware that this is a super-volatile stock with a beta of 2.85. That means it is almost three times as volatile as the S&P 500 (SPX).
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