Casino Stocks

ALL ELEVEN OF THE VEGAS AND CASINO STOCKS WE WATCH ARE SHOWING A YEAR-OVER-YEAR PERCENTAGE GAIN. BUT TRADING THIS COMING WEEK COULD BE CHOPPY.

Update June 9, 2013 When Wall Street trading resumes Monday morning you should expect some choppy trading. Last week Wall Street had a mediocre start of the month rally and the Vegas and casino stocks that we watch here on a weekly basis were mixed. I expect to see some choppy trading this week to follow the choppy trading that we had last week.

Still, the Vegas stocks have joined the bull market. However, this market went up too far and too fast and some selling and profit taking can be expected.

Here are the stocks we follow, their symbols, how they closed on Friday, their weekly change, and the percentage change from a year earlier.

Las Vegas Sands LVS $57.20 Down 63-cents Up 24%

Wynn WYNN $137.50 Up $2.00 Up 32%

Boyd BYD $12.35 Down 68-cents Up 66%

MGM Resorts International MGM $15.04 Down 10-cents Up 31%

Caesars CZR $13.97 Down 52-cents Up 16%

Melco Crown Entertainment MPEL $24.20 Up 68-cents Up 103%

Isle of Capri ISLE $7.72 Unchanged Up 40%

Williams Gaming WMS $25.38 Up 3-cents Up 23%

Las Vegas Railway Express XTRN 8-cents Down 1-cent Up 25%

International Gaming Technology IGT $17.42 Up 17-cents Up 26%

SHFL entertainment SHFL $17.78 Up 53-cents Up 22%

Scientific Games SGMS (Is taking over WMS so it is added to our list of 11) $11.64 Up 75-cents Up 31%

What ignited Caesars five months ago was news that gaming action had increased in Las Vegas and Nevada, and more prospects that online gambling might be legalized soon in New Jersey and other states. And now Nevada is likely to have online gaming and Caesars is already well established as an online company in Europe. Company officials expect CZR will also benefit from online gaming in the various states through Caesars and WSOP branded online poker and online gaming sites and the company might be offering online players bonuses and incentives to get them to visit its brick and mortar casinos. CZR also has casinos in Atlantic City, New Jersey. But the company is still overloaded with debt and it will be issuing more debt (bonds) to lower interest rates it pays, and it is selling some casinos around the country to raise capital and streamline operations.

WMS will be taken over by Scientific Games Corporation by the end of this year. Shareholders have approved the takeover. Scientific Games makes instant-lottery games. When there are buyouts in a sector, it is not unusual for speculators to start buying other stocks in the same sector expecting more buyouts to come.

As I mentioned on our "Stock Market Notes" page I am concerned that Dow 15,000 has triggered profit taking. A pause to refresh, or a slowdown in the rally is not necessarily a bad thing. But it appears that after some choppy trading, the over market might move higher this week along with the seasonal patter of buying during the first week of the new month.

The gaming sector is now showing overall strength -- though it is modest strength. All eleven stocks that we watch here on a weekly basis are showing a percentage gain over the last year. The percentage gains for the winners are not very big, however. There are still problems for the casinos as they try to recover from the great recession.

XTRN which is the symbol for the Las Vegas Railway Express has received a lot of positive media coverage following its big announcement that it has a deal to use Union Pacific's tracks for part of its route between Vegas and Fullerton, California. But the stock is under pressure. What surprised some was a news release that it needed to raise $100-million of which $56 million will go for rail improvements and that money will be paid to Union Pacific. XTRN officials also revealed that it will have test runs later this year, and it plans a run for this coming New Year's Eve but that regular service wouldn't start until January 4, 2014. It's too bad that it can't be fully up to speed during the holiday period both for those travelling to Las Vegas and for Nevada residents travelling to Southern California. The company still must build a train station behind The Plaza in downtown Vegas, and it still has to refurbish rail cars, hire and train employees and staffers and it still needs a contract to use rails from around Barstow, California to Fullerton where the train will start its route. The train will not stop in downtown Los Angeles and that might also put some doubt in the minds of investors. The stock is well below its record highs in the range of 45-cents.

Shuffle Master which is now known as SHFL Entertainment and is trying to expand into online gaming and it is expanding the marketing of its "Fire Bet" on craps and the Fire Bet just started at Harrah's Rincon in San Diego, California, which is a Native American casino operated by Caesars. This shows that the Fire Bet can even be used on card craps games and it opens a new market for the Fire Bet add-on.

The Vegas gaming and casino stocks still have some problems.

This past week, Caesars was above its IPO price of $9. There have been many warnings that CZR has too much debt, and too many shares in insider hands waiting to be sold publicly. The latest news is that Caesars is losing money, and it is returning to the debt market to raise money, that doesn't come as a surprise at all. Be careful, more stock issues are coming which could hit this stock price hard. Is someone about to scream out "the Emperor has no clothes!" But the company stands to excel if online gambling and online poker become legal in the United States.

LVS is primarily a stock that reflects overseas gaming interests in Asia and quite possibly Spain in the next couple of years -- and that's what's been driving this stock. But it appears that euphoria has worn off. And there are concerns about falling profits in Macau as the Chinese economy cools. There have been reports about the economy in China slowing. Helping the company now are its plans for gaming in Spain, and it has targeted Madrid.

Wynn remains the highest price stock on our list. WYNN is moving into Macau but it is making its move late in the game. And the latest reports are that the Chinese economy and the gaming market in Macau are both improving again.

Boyd Gaming is a true domestic company and it finally made a deal to sell off its North Strip development which allows it to focus on its better ventures.

MPEL is the big player in Macau and it too has suffered along with the Chinese economy. Melco Crown Entertainment is showing a price that has doubled over a year earlier but this stock used to be showing much bigger year over year percentage gains.

SHFL entertainment is the company that makes automatic card shuffling devices for various casino games and poker tables. We added SHFL to our list of stocks to watch a few months ago after it bought the company that created and licensed the "Fire Bet" on craps tables. We think SHFL is a growth company because of its ties to poker which is spreading and growing. It is also entering the online poker business and it wants to offer other online gaming.

The wild stock has been Las Vegas Railway Express and XTRN is its symbol because it has had some wild swings. But penny stocks will have wild swings and literally can turn on a dime... or a penny.

Of course people will get to Vegas when there is a big event such as a fight of a lifetime or a big building implosion. So maybe leveling the Harmon in CityCenter will help boost traffic at least for a weekend. And that big event appears to be getting closer.

The big question is if the world's banks and governments can resolve the current financial worry and get the markets back to a firm footing, and if the unemployment rate can get cut quickly with job creation.

Here are the percentage changes for 2012:

LVS up 8%, WYNN up 2%, BYD down 11%, MGM up 12%, IGT down 18%, MPEL up 75%, ISLE up 20%, WMS down 15%, XTRN up 25%, and the new additions to the list CZR down 23%, SHFL up 24%.

Now compare that to how the stocks did for the year 2011:

LVS down 4%, WYNN up 9%, BYD down 29%, MGM down 30%,IGT down 2%, MPEL up 53%, ISLE down 55%, WMS down 54% and XTRN was down 50% on the year.

Here is how our stocks did for the year 2010:

LVS up 208%, WYNN up 78%, BYD up 27%, MGM up 63%,IGT down 6%, MPEL up 89%, ISLE up 37%, WMS up 13%, and XTRN was up 67% on the year.

More About Las Vegas Railway Express

Las Vegas Railway Express is not going to start regular service until January of 2014 according to a recent company statement. We know that construction on the new train station behind The Plaza can't start till later this year because the permits won't be in place till then. And the company still hasn't bought all of the passenger cars it needs and remodeling work on the used cars it is buying hasn't started yet. On the positive side it has one of two agreements with freight railroads to use the rail lines between Vegas and Southern California.

The company has also hired a marketing firm so expect to see a lot of "PR" about the company being released especially online. Remember that "marketing companies market" so we might be seeing a lot of repetitive realeases. You will have to carefully monitor these to determine if the releases are rehashing old news or if there are truly new developments.

The newest report from the company indicates that the $99 fare is an "introductory fare" and that opens the door to a fare hike later if there is strong demand or if the company underestimated its start-up costs.

I suggested that the company try to sell the naming rights of its cars to the hotels and casinos in Vegas. In fact, the company could also sell signage and decoration privileges to the casinos and hotels that purchase the naming rights. For example, should Joe's Hotel buy the naming rights, Joe's Hotel could have posters, signs, even brochures and gaming coupons on each seat in the passenger car. This past week I actually spotted some passenger trains that are "wrapped" with advertisements much like cars and trucks are wrapped. I guess the X Train cars could be wrapped as well with ads, though there won't be too many people seeing the train cars as it makes its way through the Mojave Desert.

About eleven months ago, the chairman of the train company Michael Barron sent me a text message responding to a post on YouTube.com about gambling on its trains. Barron in the text said the company had scrapped all plans to offer gaming on its trains. But recently there was a news report that indicated there might be "practice games" or "play" tournaments with prizes that didn't require cash buy-ins or entry fees. A few months ago it was announced that it hired a new Chairman of the Board who has been in the railroad industry for decades.

Now that there is an operating agreement between the Las Vegas Railways Express and Union Pacific for running the train between Vegas and Barstow, the next step is to get one with Burlington Northern for using the freight rail lines between Barstow and Southern California. The company says it has bought its first rail cars and they are supposed to be refurbished to fit the luxury style that is planned.

Las Vegas Railway Express is but one of the companies that wants to offer passenger train service between Southern California and Vegas. Other projects include a proposed high speed rail line that is multi-millions of dollars and several years away, plus another line to operate on existing tracks known as the Z Train. A report on the X Train and the Z Train is on our website on our "Travel / Vacation" page.

There is not much public information about the Z Train either, but we have learned that the Z Train project is now being called the Pullman Company and see our report on the "Travel / Vacation" page.

Of course there is also a lot of discussion and speculation about a high speed rail line in California that will be partially funded by State and Federal taxpayer money -- but it should be pointed out that the government's high speed rail line is not planned to go to Vegas. There is another group with plans for a high speed rail line to Vegas which was called DesertXpress and is now called XpressWest but that is not part of the high speed line project that has federal funding. But XpressWest on its website seems to be holding out hope that it will get federal funding and it is now making plans to coordinate with the Los Angeles Metro train system to link to passenger trains in northern Los Angeles County and ultimately to Victorville where it expects to have its station. Meanwhile, we have to wonder what a downgrade of U. S. debt and rising interest rates could do to any fund-raising and investment for projects such as these?

About the Vegas Economy

One thing is certain: Las Vegas can't be healthy if the American economy isn't healthy. There are doubts about the lingering sluggishness in the economy and that is not allowing Las Vegas and other gambling meccas to recover. And there are more worries about a double dip recession despite the talk about a recovery. Vegas can't get more revenue when the rest of the country is pinching pennies and worried about jobs.

A year ago I said it was possible that the "easy money" to be made in the casino stocks might be behind us. Now, I'm sure of it. The easy money making time is over. In fact, with many of the stocks now showing losses from a year ago, you might wonder if there is any upside potential left for these issues?

While a few of these stocks are still showing modest gains from a year ago it will take a lot more to get these stocks back to their record highs that were set before the recession. And with the selling of the past few weeks it might be hard to convince investors that these stocks are good bets. Vegas and gaming have a long way to go before full recovery and it will depend on the overall economy.

Best wishes, Alan Mendelson