Even Vegas Loses Sometimes
A report issued by Nevada's Gaming Control Board reveals that "winnings" for Las Vegas Strip casinos have declined in three consecutive months. Reportedly, a 4.8% dip in March followed decreases of 3.1% and 1.3% in February and January respectively. From what I've read, until recently, Vegas hadn't seen a dip in winnings since 2001.
With even the most 'recession proof" investment ideas falling by the wayside as of late, I'd like to provide you with two ideas that should flourish despite the current economic downturn in the U.S. But first, more on Vegas.
Quote of The Day:
"I think there is a recession and we're certainly feeling a slowdown in Las Vegas,"
Steve Wynn
High Gas Prices Hinder Vegas Casino Winnings
The Las Vegas Convention and Visitors Authority (LVCVA) recently reported that the number of conventions declined more than 10% and the average daily room rates nearly 4% during the first two months of the year. Things are certainly changing.
The fundamental flaw plaguing Strip casinos today lies in their revenue mix between gaming and non-gaming activities. Today nearly 60% of revenues are derived from non-gaming activities. In the early 1990's non-gaming revenues contributed a far lesser 42% of the overall figure. The problem is that non-gaming activities such as food sales and hotel reservations are far less resilient against recession in comparison to activities such as sports betting and table games.
Even the allure of the weak dollar to foreign tourists eager to make their voyage to "gamblers Mecca" hasn't been enough to help Vegas hedge against the ongoing slowdown.
"Price of Gas Forcing People to Avoid Vegas: Gamble at Online Casinos Instead"
Casino Shares Tumble
MGM (NYSE: MGM), the largest of the publicly traded casinos (1yr. chart to left), has seen shares tumble nearly 50% since October. MGM's profits took a 30% nose dive during the first quarter of 2008 amid higher construction and energy costs and decreased tourism. In addition to the MGM Grand, the company's other Vegas properties include: Bellagio, The Mirage, and Mandalay Bay.Las Vegas Sands Corp. (NYSE: LVS) shares are also down nearly 50% since
October. LVS logged an $11.2M loss during Q1 2008 and appears to be increasingly relying on international business, particularly in Asia, to fuel future growth.Judging by the most recent Q, the company's Asian business is not performing quite so well at this point and Vegas operations are bringing in more money. However, costs are increasing at a much higher rate than sales. Consequently, KeyBanc Capital Mkts downgraded shares from "Hold" to "Overweight" on 5/1/08.
In the private sector, Tropicana Entertainment recently filed for bankruptcy. The company currently owns the famous Tropicana Casino in Las Vegas as well as 8 others across the country.
"MGM Mirage outlook cut to stable; 'BB' rating affirmed - S&P"
Creditcorp: A Great Play on Peru's Growth
One investment idea that I like in the same relative price range as LVS is CREDICORP LTD (NYSE: BAP), Peru's largest financial services company. I'm patriotic, sure, but sometimes you have to look outside of the U.S. for growth in these trying times.Since I mentioned the company on April 10, the stock is up about $4.50 to $80.89. Not a bad little return. However, despite posting a 125% year-over-year revenue increase ($179M) shares were recently downgraded by Citigroup (3/07). They have been wrong before. We actually saw a 52-week high of $84.64 on 5/7 and are still trading far higher that the $72.56 we saw at the close of that day.
JP Morgan has also recently downgraded their opinion, from from overweight to neutral (5/8). Regardless of the recent negative shift in analyst opinion, I still like the stock over the longer term, say 6-12 months. After a green finish on Friday, the stock appears to be shrugging off another downgrade and showing promise for a move higher next week.
While shares trade at a relatively high price in comparison to more established peers including Unibanco (NYSE: UBB), Peru is an emerging market worth examining closely, and BAP is the country's biggest financial services company. Fitch Ratings, a leading independent global rating agency, recently upgraded Peru's long-term foreign currency issuer default rating to BBB-, investment grade, from BB+, citing strong improvement in fiscal and external solvency ratios.
Peru's economy grew by about 7.5% in 2007 and is set to expand by about 6.3% this year. The past five years have seen average year-over-year economic growth of roughly 5%. The country is also busting at the seams with natural resources including: natural gas, lead, copper, zinc, silver, gold, iron ore and coal. The middle class is "movin on up" and finally becoming qualified for loans which they pay back religiously.
At this point in time I believe only about 1% of the company's loans are past due. In stark comparison, Bank of America (NYSE:BAC) wrote down $1.9B on bad debt during the first quarter. BAC also set aside another $6B for loan and credit losses, almost double the $3.3 allocated in Q4. All in all, BAP is a very timely investment opportunity given the current economical and political climate in the country.
"Peru's Born-Again Free Marketeer"
In the $80 range, I'd rather speculate on the growth of the Peruvian banking system than gamble on the turnaround of the Las Vegas casino business.
Labels: BAP, Creditcorp Ltd., Las Vegas, Las Vegas Sands, MGM, Vegas
posted by "Staff" at
1:35 PM
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