Betting on the Breakout in Las Vegas Sands Corp. (LVS)

October 02, 2013, 13:05 pm ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Las Vegas Sands Corp. (NYSE:LVS) owns and operates the Venetian Casino Resort and the Sands Expo and Convention Center in Las Vegas, and the Sands Macao Casino in Macau, China. Business in China has been driving shares of LVS higher, as casino revenue in Macau was $38 billion last year, which was more than six times that of the Las Vegas Strip.  Las Vegas Sands stock is trading near a 52-week high and up 44% YTD.  Does this stock still have room to run?

October might end up being the biggest month ever for Macau’s already booming casinos.  The Golden Week Holiday is a seven-day holiday in China that started on Oct 1, and expected to attract a record number of tourists to Macau from all over China.  Gambling revenues for August in Macau were the second best ever in the red-hot casino city, up 18% from the year before.  During past Golden Week holidays, as many as 100 million Chinese have hit the roads for getaways. Fourteen out of seventeen Macau hotels surveyed were fully booked between Oct. 3 and Oct. 5, and Las Vegas Sands has said it wants to put more focus on midmarket gamblers like those who travel during Golden Week.

Las Vegas Sands is now well positioned in Macau because it is one of the only three operators that own casinos in Cotai, a new casino zone where gaming tables are in high demand.  The Cotai Strip expansion was the vision of Sheldon Adelson, the CEO of Las Vegas Sands, who aspired to create an Asian Las Vegas in Macau.  The Cotai Strip is the main driving force behind the growth in Macau’s casino market.  Las Vegas Sands continues to expand its operation in the Cotai Strip, aiming for mass-market visitors.  Management intends to price its new Parisian casino just below the Venetian to appeal to the middle market class.

However, the competition in Cotai Strip is starting to heat up as Las Vegas Sands is joined by Wynn Resorts, Limited (NASDAQ:WYNN), MGM Resorts International (NYSE:MGM), SJM, Melco Crown’s Studio City, which were all approved late last year.  The huge numbers out of Macau have pushed shares of Sands, and Las Vegas rivals MGM and Wynn that also own multi-billion dollar casinos in Macau, to a series of new highs.  Shares of MGM, Las Vegas Sands and Wynn Resorts have seen respective year-to-date gains of 75%, 44% and 41%.  According to the real-time trading report published by Stock Traders Daily, shares of LVS have just broken above long-term resistance, which is a very bullish sign if it holds. 

Las Vegas Sand’s CEO, Sheldon Adelson had already planned and invested heavily in Cotai from the very beginning. Being first in the region, Las Vegas Sands is likely to see solid growth from Cotai Strip with limited competition for the next few years, while it continues to develop its fifth resort, The Parisian Macau, scheduled to open in late 2015. Both Wynn and MGM have to wait a few years before they will see the benefits of Cotai, as they do not expect their new casinos to open until after Jan 2016.

Japan could be the next country to drive growth, as it is a attractive gaming market with a large and relatively rich population base.  The son of Macau gambling tycoon Stanley Ho said he has been lobbying with multiple cabinet members in Japan for the legalization of casinos.  Big casinos like Wynn, MGM and Las Vegas Sands are seeking expansion opportunities in Japan, and Tokyo was selected to host the 2020 Olympics, which could install confidence that the government will legalize casinos.

It might be good timing for shares of LVS to be breaking out while the Golden Week Holiday is just getting underway. Once the holiday numbers come out, investors will get a glimpse of the potential of not just the high rollers, but the middle class in China too, which Las Vegas Sands has been betting on.  Based on the Stock Traders Daily real-time trading report, the stock has just broken above long-term resistance, which is now converted support. So far, converted support is holding, and as long as that remains true, the rules that govern our strategies tell us to expect higher levels, but converted support also acts as our risk control.  We are buyers at that converted support level, but caution buyers not to chase the stock.  We see higher levels only if converted support (former resistance) stays in place.

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