Investors searching for a big investment theme in 2018 just might consider gaming stocks, according to a recent research report from Morgan Stanley (MS). Tech stocks led the markets to record high after record high in 2017, but they now offer lofty valuations tied to rosy expectations of future growth. As a result, the odds of earnings disappointments are starting to outweigh the probabilities of further positive surprises. Partly as a result, Goldman Sach Group Inc. (GS) recently recommended that investors reduce tech to equal weight, or market weight, in their portfolios. (For more, see also: 10 Stocks That Can Outperform in 2018: Goldman.)

To shift the odds more in your favor, consider that Morgan Stanley has overweight ratings on these three gaming stocks: Wynn Resorts Ltd. (WYNN), Las Vegas Sands Corp. (LVS), and MGM Resorts International (MGM). Morgan Stanley's recent report on gaming, "2018 Outlook: Macau Still Favorite, Attractive MGM Setup," was dated January 15.

Beating Tech

Looking back at 2017, both Wynn Resorts (+98.1%) and Las Vegas Sands (+36.2%) beat the 33.3% gain in the S&P 500 Technology Select Sector Index (IXT), per S&P Dow Jones Indices.

Looking ahead to 2018, the U.S. equity strategy group at Morgan Stanley has a bull case of 3,000 for the S&P 500 Index (SPX) by yearend, 7.1% above its January 19 open. They deem this scenario "more likely" in their January 16 report entitled "Weekly Warm-up: Euphoria!"

Wynn Resorts

Morgan Stanley's price target is $192, or 8.6% above the January 19 open. Wynn's shares rose 98.1% in 2017, and have added another 4.9% so far in 2018. Wynn is their top pick overall among gaming and lodging stocks. They project gross gaming revenue in Macau to increase by 16% in 2018, and forecast a 16.5% market share for Wynn, up from an estimated 16% in 2017 and better than the consensus estimate of 15.5% for Wynn in 2018.

The former Portuguese colony of Macau is the only place in China where casinos are legal, and the gaming industry there is in the midst of rapid multi-year growth, particular in the segment that can be characterized as luxury, high-end, high roller, or VIP, per Reuters. Macau is roughly 40 miles west of central Hong Kong by sea in southern China.

The forward P/E ratio on Wynn is 34, per Morgan Stanley. In the last reported quarter, Q3 2017, EPS were 78 cents, up 6.8% from 73 cents in the prior quarter. Wynn has a dividend yield of 1.14%.

Las Vegas Sands

The price target is $74, just 10 cents above the January 19 open. The stock gained 36.2% in 2017, and is up 6.4% in 2018.

Las Vegas Sands is an even bigger play than Wynn on the rapidly-growing Macau market, with a share of 21.3% projected for 2018 by Morgan Stanley. Their overweight rating stems from treating Las Vegas Sands as a "long-term play on Macau." For all operators in Macau, Morgan Stanley projects that their aggregate revenues will grow from an estimated $33.3 billion in 2017 to $47.8 billion in 2020, a 43.5% increase.

The forward P/E is 26. EPS in Q3 2017 were 72 cents, up 4.3% from 69 cents in the prior quarter. The stock has a dividend yield of 3.96%.

MGM Resorts International

The price target is $40, implying a 10.3% advance from the January 19 open. The stock rose 17.5% in 2017, and has tacked on another 8.6% in 2018. Free cash flow should flip from negative in 2017 to positive in 2018, giving a boost to stock performance, per Morgan Stanley. The main reason is that capital expenditures in support of growth are expected to decline by about 50% in 2018.

A drag on 2017 performance was the October 1 mass shooting on the Las Vegas Strip, which hurt tourism for the remainder of the year. Looking ahead, Morgan Stanley projects revenue on the Strip to grow in the low-single digits, helped by convention capacity that will increase by 19% during the next three years and "acceleration in broader consumer spending." Meanwhile, MGM also is a player in Macau, and Morgan Stanley projects a 10% market share for them in 2018, ahead of the 8.9% consensus.

The stock has a forward P/E of 33. The dividend yield is 1.22%. EPS fell from 36 cents in Q2 2017 to 31 cents in Q3 2017, a decline of 14%.

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