MGM and Sands Las Vegas buck trend as actionable investment ideas

September 18, 2022

Given the troubled economic times, it’s no huge surprise that casino stocks have been among the investments that have taken a sustained beating in the market since the start of this year. The latest report from Citi Group bore out that expectation, with negative news for most of the casino industry and for consumer discretionary assets in general. Again, that’s little surprise in an economy where people have less disposable income. However, somewhat miraculously, there have been exceptions to the overall negative picture – with MGM and Sands Las Vegas outperforming not only the other casinos, but the stock market overall.

As two of the bigger names in the casino market, MGM and Sands are perhaps better-insulated then many of their competitors, who are expected to suffer as consumers with less disposable income seek to focus their spending in less risky arenas. Across the “consumer discretionary” field, which is the umbrella for all stocks which relate to non-essential spending by individual customers, just nine stocks received a constructive report from Citi. Of those nine, MGM and Sands were the only two casino stocks named. This is a surprise in itself given the relatively low levels of consumer confidence right now.

To illustrate both the severity of the economic picture and the surprising performance of the aforementioned stocks, it’s worth noting that the overall S&P 500 market is down by over 16% year-to-date. That’s a loss of almost one-sixth of its total value across all assets. In that environment, however, Sands has managed to gain in value by 2.66%. If it is capable of weathering the kind of storm that has gathered around investment in general, it’s a solid stock that retains a considerable chance of performing even better when the economic picture begins to brighten.

One possible reason for the continuing overperformance of MGM and Sands stock is that both operators have taken the chance to feather their nests during growth periods. As things stand, Sands is understood to have cash-on-hand reserves of close to $6.5 billion, while MGM is just short of the $6 billion mark. Most other casino operators are operating with debt at the moment, and while this is normal it does not do them any favors on the question of stock price. While Sands and MGM continue to outperform expectations, they are also more likely to continue attracting consumers who continue to spend money at casinos.

The report – not alone among major financial reports in recent times – does forecast a recession in the first half of 2023. This may depress consumer discretionary stocks further, but of all stocks available for purchase in the casino sector, the aforementioned two are perhaps the best-positioned to come through any recession comfortably, and will also be in a condition to benefit from any financial recovery which follows. For now, though, it’s impressive enough that they have managed to buck a trend which has hit far beyond the consumer gaming sector.

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