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With the gambling boom over, is it time to buy a casino?

With the gambling boom over, is it time to buy a casino? In the past couple of months the land based gambling companies have been a target of negative discussion, mostly due to the soaring fuel prices and the respective drop in casino earnings. The stock prices for many casino operators have lost half of their value in the past few months, but is this the end to gambling as we know it or is now the best time to buy a casino? We are inclined to believe the latter and think that the casino gambling decline is close to an end.

 First, lets look at the current gasoline prices - at press time the U.S. light sweet crude was trading at around $124, miles away from the below-$100 per barrel last November. And even though the current fall in oil prices would save you no more than $5 per tank at the gas station, the physiological effect is certain. Will gasoline prices remain at lower levels or climb up again is yet to be seen, but the current situation is a welcomed breath of fresh air for all casinos in the United States.

 But we would like to dig a little deeper than simply the travel costs. What many have failed to realize is the "bubble" created with the casino stocks in mid to late 2007, or "boom" if you'd prefer the term. For the purpose of this discussion we will look at the stocks of three of the biggest U.S. casino gambling operators - MGM Mirage (NYSE:MGM), Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS). When looking at the stock prices of these three casino gambling giants in the past few years one similarity instantly strikes the observer - October 2007. During this month all three companies reached their highest stock price ever. Anything interesting during 2007, other than gas price - Macau. The Chinese conclave added the much needed boost in gambling world-wide and the U.S. casino operators were quick to bet on the new gambling paradise. And when Macau overrun Vegas in gambling revenue the stock prices of the three casino giants soared.

 Since gambling tourism is the main source of income for the U.S. casinos, however, the Macau boom was not enough to hold the stocks against the mighty barrel of black gold. But it's not all bad - all three casino operators are currently trading at their 2005 levels, which we think is a great news for any investors looking to expand their portfolio into gambling, without paying the steep price of late 2007 gambling stocks. MGM Mirage, for example, is due to post Q2 tomorrow and we don't expect anything positive, but the company, although not as profitable, is still turning a good dollar. In the first quarter of 2008 MGM Mirage posted $1.88 billion in total revenue, while the total revenue for the entire 2007 was $7.69 billion. Two weeks ago Wynn Resorts Ltd. reported that its second-quarter earnings more than tripled compared to last year due to a hefty tax benefit and strong revenue growth at the Las Vegas-based casino operator's Macau property. Excluding special items, profit rose 23.3%. Las Vegas Sands, the casino operator most hurt from the "Macau cooling", has lost 70% of its value since October of last year. Sands also posted Q2 net loss of $8.8 million. But with the fuel prices reaching stable grounds, a 70% devaluation makes Las Vegas Sands a great buy, in our opinion.

 In a nutshell, we believe that the casino gambling market had reached the rock bottom (or it's very near to). With Macau boom cooling off, the casinos are leaving the speculative and are reaching a price based on the market fundamentals.

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 Published on 08/04/2008

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