If you're a casino gambler, then you know how tough it is to beat the house. As traders, we also are trying to beat the house, but we do it by putting as many of the variables we can in our favor before we enter a position. Today, I want you to consider the positive variables in a stock that wins when gamblers lose, and that stock is Las Vegas Sands (LVS).
Las Vegas Sands is the developer and operator of casino gaming resorts both in its namesake hometown and in Asia. The company's properties in the U.S. include The Venetian and The Palazzo resorts in Las Vegas, as well as the Sands Expo and Convention Center. And while the Las Vegas properties have performed well for LVS, the real juice comes from the company's Sands and Venetian properties in the island nation of Macau.
The gaming is good in Macau these days, and on Thursday, we found out just how good. According to Macau's Gaming Inspection and Coordination Bureau, gaming revenue in the region primarily frequented by Mainland Chinese gamblers came in at $45.2 billion, up 18.6% from $38 billion in 2012. By comparison, Las Vegas had just $10.8 billion in gaming revenue in 2012, proving that Macau is the mecca for gambling revenue.
Considering the strong year in gaming that Macau just recorded, many industry watchers are bullish about the prospects for 2014. Wells Fargo (WFC) analyst Cameron McKnight told Investor's Business Daily he was expecting 12%-15% growth for the year in the region. "The macro environment remains generally supportive of growth," said McKnight, who added that "Chinese high-end consumer sentiment is now at year-to-date highs, and export growth remains strong."
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For traders, the bullish forecast for Macau in the year to come represents a powerful tailwind that could blow LVS shares substantially higher in 2014, despite the already powerful run we've seen over the past six months. LVS has soared more than 50% since July.
The chart here shows the big price move in late August as the stock bounced from its 50-day moving average, and it has remained well above it since then. The stock hit a new multi-year high of $80 on Thursday.
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One big contributing factor to the rise in LVS shares at that time was the company's agreement to pay $47.4 million due to its failure to flag millions of dollars in money transfers made by a gambler linked to drug trafficking. In exchange for agreement to pay the fine, the U.S. Attorney's Office in Los Angeles basically agreed to not seek an indictment against the casino operator. This deal brought to a close the government's criminal investigation of the matter, and that gave traders the confidence to get back into LVS.
Considering the favorable Macau gaming environment, and the likelihood that it will remain so in 2014, and considering the strong buying momentum in LVS shares, I see this stock continuing to trade up to the $90 level before the first quarter comes to a close.
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Recommended Trade Setup:
-- Buy LVS at the market price
-- Set stop-loss at $73.11, approximately 8% below recent prices
-- Set initial price target at $90 for a potential 13% gain in three months