Despite Macau's gaming revenue increasing 14% in 2018, casino stocks that have exposure to the Chinese gaming mecca failed to attract investor interest last year due to concerns about a slowing Chinese economy, regulations that limit table numbers and ban smoking, and increased resort competition from nearby countries such as Singapore, South Korea and the Philippines.
On the other side of the chip, infrastructure developments such as a new bridge that connects Macau with Hong Kong and Zhuhai should increase visitor numbers to the area. Casinos in the former Portuguese colony also continue to diversify their revenue options by focusing on overall entertainment, such as adding restaurants and shopping that make the destination more family friendly.
"Macau revenue is all gambling which means that they're really lagging the whole entertainment and dining gambit revenue that Las Vegas gets. I think that's going to be coming," Boris Schlossberg, managing director of FX strategy at BK Asset Management, told CNBC's "Trading Nation" program in December. Add a possible trade agreement between the United States and China that offers mutual benefits to both countries, and casino stocks could go on a winning streak in 2019.
Traders who want exposure to leading casino stocks should consider adding these three industry leaders to their watchlist.
Wynn Resorts, Limited (WYNN)
Wynn Resorts, Limited (WYNN), with a market capitalization of $11.90 billion, operates luxury casinos and resorts. The company's flagship properties include Wynn Macau and Encore in Macau and Wynn Las Vegas and Encore in Las Vegas. The company generates 70% of its earnings from Macau and 30% from Las Vegas. Wynn Resorts stock pays investors a 2.74% dividend and has started 2019 on a positive note, returning 10.68% year to date (YTD) as of Jan. 8, 2019.
The Wynn chart shows a double bottom forming, a chart pattern suggesting that the stock's price may reverse to the upside. Bullish divergence between price action and the relative strength index (RSI) also supports a change in trend direction – December's lower low coincided with a higher RSI low. Traders may see follow-through buying up to the $140 resistance area if the price breaks above the double bottom's neckline at $120.
Las Vegas Sands Corp. (LVS)
Las Vegas Sands Corp. (LVS) owns integrated resorts that feature casinos, hotels, entertainment and dining. The company, founded 31 years ago, receives 90% of its earnings from Asia and generates 30% of revenue from its casino operations. Trading at $55.47, with a market cap of $43.46 billion and offering an eye-catching 5.41% dividend yield, Las Vegas Sands stock is up 6.57% for the year, outperforming the S&P 500 Index by nearly 5% over the same period as of Jan. 8, 2019.
The company's share price oscillated within a trading range for the first six months of 2018 before falling roughly 38% between late June and the back end of December. Like Wynn Resorts, a bullish divergence has formed between price action and the RSI followed by a move higher that started on Dec. 26 – the day the Dow Jones Industrial Average (DJIA) recorded its largest ever one-day points gain. The stock also looks to be carving out a double bottom, and the price could accelerate if it breaks the pattern's neckline at $57.5.
Eldorado Resorts, Inc. (ERI)
Reno, Nevada-based Eldorado Resorts, Inc. (ERI) operates gaming and hospitality facilities in Nevada, Ohio, Pennsylvania, Colorado and Florida as well as in several other states. Some of the company's better-known properties include the Eldorado Resort Casino Reno, Silver Legacy Resort Casino and Circus Circus Reno. The company, with a $3.16 billion market cap, generates all of its income in the United States, which may appeal to those wanting to invest in a casino/resort stock that doesn't have Chinese exposure. As of Jan. 8, 2019, Eldorado Resorts' share price has returned nearly 13% YTD, making it the best performing stock of the three discussed.
Buying the stock on dips during the first seven months of 2018 proved to be a highly successful strategy. However, the share price succumbed to broad market weakness in October and has remained range bound since. If the price breaks above resistance from a horizontal line at $46, watch for a run-up to test the August and October swing highs at the $50 level.