Talking Numbers

This casino has the most favorable odds

This casino has the most favorable odds

Things may have gotten worse in the gambling capital of the world but could some of its biggest players still be solid bets for investors.

The casino industry in Macau, the center of the gambling universe, has been dealt several bad hands recently: a crackdown on corruption by the Chinese government; an impending smoking ban;typhoon Kalmaegi in nearby Hong Kong; and the upcoming Golden Week holiday have all been scaring money away from the tables. The average daily revenue for Macau in September, currently estimated at about $100.2 million per day, isdown 14 percent from August.

Meanwhile, the four big Macau players trading in the U.S. – Las Vegas Sands, Melco Crown Entertainment, MGM Resorts and Wynn Resorts – have all been losing bets in 2014.



Market Cap ($ billion)

YTD Returns

Las Vegas Sands




Melco Crown Entertainment




MGM Resorts International




Wynn Resorts




But some of the smarter names on Wall Street think their luck is about to change.

"The risk-rewards could turn more favorable, in our view," writes JP Morgan's gaming analyst Joseph Greff in his newest report. "We think these stocks would potentially be at 'close your eyes' levels. We see most of the stocks as having an upside/downside of 2:1 (so favorable)."

But which of those companies has the best odds? Chad Morganlander, portfolio manager at Stifel Nicolaus' Washington Crossing Advisors, is betting on MGM. His company maintains a price target of $32 per share, roughly 35 percent higher than its current price. Morganlander also notes that only about a third of MGM's business comes from Macau.

"There have been transitory issues in China," Morganlandersaid. "We believe though that those issues are going to be worked out over the next six to nine months and that you would want to step in at this point."

To be sure, Morganlander believes the stock is volatile and investors should scale in their bets. "But over the long run, we believe that this one could be quite profitable if you put it in your portfolio," he said.

But not every trader thinks it's a good idea to play a hand with MGM. Richard Ross, global technical strategist at Auerbach Grayson, sees terrible odds for the stock based on the charts.

According to Ross, MGM has made a complex head-and-shoulders pattern for much of 2014. "A complex head-and-shoulders is essentially a combination of two smaller head and shoulder and when you put them together, it creates a very ominous pattern," he explained.

The complex head-and-shoulders pattern maintained a neckline near the $23 level but that was broken within the past few weeks. "We've taken out the 200-day moving average [currently at $24.95] and should we once again fall beneath that $22 level," said Ross, a "Talking Numbers" contributor. "It's going to project measured downside to around $18."

Ross also has a warning for those expect Lady Luck to smile on MGM's stock. "At the height in 2007 to the low in 2009, MGM lost 98 percent of its value before it found a bottom," he said. "This little pullback that we're seeing – maybe 15 to 16 percent off the top –might not be the actual bottom. This could be a false bottom and it could be a fast move down if we take out this key support."

To see the full discussion on MGM, with Morganlander on the fundamentals and Ross on the technicals, watch the above video.

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