I am The Hoff.
Recently, inspired by his Thousandaire 2011 stock picks, Kevin has asked me to post a weekly stock pick here. Since this is truly one of my passions, I jumped at the idea, and am here today to bring you the first weekly Thousandaire stock pick.
Over the next year I will provide you with a weekly stock pick every Monday (which will leave just enough time for Kevin to enter his Tuesday trades into Sharebuilder). We will keep tracking the performance of the thousandaire portfolio and keep you updated.
But before jumping into the first pick I wanted to give you a brief background behind my investment philosophy. I am a value investor at heart (with a poster of Warren Buffett on my wall), however I have my own spin. Instead of looking to closely at the cash value of a business (everybody can do this today with publicly available data), I look at the inherent value in their business model and brand. From a risk perspective, stock picking is inherently more risky than mutual funds and ETFs. I am in my 20s, which allows me to take greater risk, however you should carefully evaluate your own risk tolerance and make your own investment decisions.
I’ve spent the last week in a deep depression along with millions of Americans grieving my disastrous loss in the $355 million Mega Millions lottery. Although I know I will never win, I keep buying tickets. Gambling is addictive. So I thought to myself: “If I owned the company that kept taking my money, I’d be rich.” And that’s how I discovered this gem.
Las Vegas Sands (NYSE:LVS):
Over the last few years the gambling industry has been hit hard by high debt and low profits. Casinos have a very high fixed cost and are therefore especially vulnerable to falling customer traffic (Apparently people don’t go to Vegas in the middle of a recession).
The outlook however is looking up. As the economy recovers, more people will again visit the Sin City (and other casino areas around the world). In addition, going forward the casino industry will have a much larger market as many debt-laden municipalities and states are looking to the gaming industry for extra revenue. You will see casinos open across the country in places you may not expect, like Columbus, Ohio.
Las Vegas Sands stock was at nearly $140 at its high in 2007 and this was before it had built a number of new casinos including their Macao properties (Macao is the Las Vegas of China, and as the Chinese economy grows, Chinese citizens will have more disposable income to part with). These new properties will present an opportunity for additional revenue in the future. Even when disregarding these new casinos, LVS still trades at a sharp discount to its 2007 high.
There are a number of other casino stocks with similar fundamentals to LVS, MGM and Wynn just to name a few. If you don’t feel comfortable picking which company will come out on top, consider investing in a company that supplies to all of the above. Gaming Partners International (NASDAQ:GPIC) creates new high tech RFID gaming chips and controls 70% of that market (it is protected by patents until 2015). No matter which casino company comes out on top, GPIC will likely supply the chips.
When to sell?
The growth of LVS will be linked to the growth of its casino properties in Emerging Markets. When the profit growth of Macao slows, it may be time to sell.
LVS still holds a heavy debt burden which caused its stock to drop to under $2 during the credit crunch as analysts predicted bankruptcy. Pay close attention to LVS debt.
I don’t own any
Kevin’s Take: You know what they say; “The house always wins.” I’d love to be invested in this stock because I think it will have very nice returns, but I’m not sure if I can be at peace with myself investing in a company that can ruin lives as effectively as a casino can. I understand it’s a person’s choice to gamble, but it is also an addiction. Do you feel there is a moral issue with investing in LVS or any other casino stock?
Important to note that ALL ideas, thoughts, and/or forecasts expressed or implied herein are for informational and entertainment purposes only and should NOT be construed as a recommendation to invest, trade, or speculate in the markets.