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Tickers in this Article: WMS, FLL, LVS, BJK, MGM
Is Vegas finally past the worst and in an upswing? Many still say no, but some of the recent numbers offer some encouragement. Moreover, some of the numbers may be an early hint of a recovery-based investment opportunity. You can decide for yourself, but just bear in mind that business is cyclical, and gambling will be back en vogue at some point. Maybe the time is now.

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Something To Build On
Though they're a tad dated, the recently announced November traffic numbers for Las Vegas are still the most current we have. So, what did the Las Vegas Convention & Visitors Authority report? Here are the highlights:

  • November's year-over-year visitors were up 2.9%
  • Room occupancy was basically flat in November (-1.0%)
  • Gaming/gambling revenues were up 8.3% in November
It all sounds fairly positive, but then again the bar's set pretty low, isn't it? Fair enough, though it's not quite the point. The point is that this could be the beginning of a clear shift in the trend's direction - not just a static anomaly.

To that end, the numbers do offer two other important clues: First, it's the first time since December of 2007 (when the recession began) that gaming revenues have been up on a month-over-month basis; it was also the third monthly increase in visitor traffic. The former is encouraging, but it isn't quite evidence of a new direction - there just isn't enough data. The latter, however, has the makings of a true trend, at least from my perspective.

And therein lies the rub. Do we wait for certainty, or do we trust our intuition? I love certainty as much as the next guy, but with the Dow Jones Gambling Index up 259% since July, and up more than 12% so far for the year, I think at this point we have to concede that these stocks could make the bulk of any impending gain before there's enough data to feel certain. It's a gamble, but then again, there's no such thing as a risk-free investment.

So, I think the data we have in hand is enough to say that the Las Vegas tide has turned along with most other industries, and we need to start investing again - selectively - in SinCity. Below are some ideas and rationales.

Stocks With the Best Odds

  1. MGM Mirage (NYSE:MGM)
    Being the only major casino to actually see growth in yearly revenue (by 6.4%), clearly MGM is doing something right. Critics will argue that the only reason the casino operator made the revenue progress was due to the recently-opened Aria. And that may well be true. But I'll just counter with a "so what?" Being able and willing to spend money in a lousy environment gets the company well positioned for the bigger rebound. Which is yet another reason to like MGM.
  2. Market Vectors Gaming ETF (NYSE:BJK)
    I've got mixed feelings about the gaming fund, as I suspect we'll see mixed results from these stocks in 2010; owning BJK means you may be holding some dead weight. I don't think it will be enough to crimp these stocks as a group though, so if you just don't have the inclination to pick or own an individual stock, this is the way to go.

  3. Las Vegas Sands (NYSE:LVS)
    The recent income statements (which include one-time charges) have not only been disappointing, but seem to be getting worse. Nevertheless, the future looks better than the past - not because of Vegas, but because of Macau. You see, only about 17% of Las Vegas Sands' revenue came from sites in Las Vegas, which is still a tad shaky as a tourism spot. The bulk of the company's revenue comes from the Pacific Rim - Macau and Singapore, to be specific. It's an important distinction to make too, since Macau seems to be on a much firmer footing in terms of gaming growth. Revenues have been measurably increasing since the middle of last year, and surged by nearly 50% in December. S&P expects Macau casino gaming to grow by 10-15% in 2010.

  4. Full House Resorts Inc. (NYSE:FLL)
    Odds are you've never even heard of this microscopic company with a market cap of $60 million. Its size is its advantage though, and management uses it well. The company is actually more of a casino holding company, though still a good one. The company's investments seem to be very profitable, and margins - though volatile - have outperformed many competitors.

  5. WMS Industries Inc. (NYSE:WMS)
    WMS is not a casino operator; it makes the electronic gaming machines used by casinos. This is a much simpler business, but it also gets all the upside of a recovery. I like it simply because the company maintained profitability throughout the recession. Although WMS stock took a significant dip in March of 2009, it is currently trading near a five-year high. So, WMS could be a good offensive and defensive play. (For those who condemn the casino business, check out Socially (Ir)responsible Mutual Funds.)

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