We're adding to our position in this casino operator on a pullback

Published Thu, Jun 1 202311:57 AM EDT

We are buying 100 shares of Wynn Resorts (WYNN) at roughly $96.89 apiece. Following Thursday's trade, Jim Cramer's Charitable Trust will own 300 shares of WYNN, increasing its weighting in the portfolio to 1.08% from 0.73% Wynn Resorts stock is down Thursday morning, at around $97 a share, extending a roughly 15% slide from the start of May. The stock has been weighed down in recent weeks by a fresh wave of Covid-19 in China — a crucial market for the casino operator — and broader concerns of a slowdown in the global economy. We see this pullback as a buying opportunity, and are upgrading our rating to a 1. Our buy comes as China's special administrative region of Macao, a gambling hub, on Thursday reported May gross gaming revenue (GGR) of $1.93 billion. That was a 366% increase year-on-year, though slightly below market expectations for a 371% annual rise. Notably, May GGR improved by 6% from April, giving Macao its best monthly performance since January 2020. Wynn Resorts may be known in the U.S. for its luxury properties in Las Vegas and Boston, but Macao is the true center of the story. Before the Covid pandemic, the company generated about 75% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) from its Macao properties. After three years of Covid lockdowns in China, Wynn showed its was back on track when it reported a blockbuster earnings report on May 9, while demonstrating its Macao operations had a strong start to May. The pent-up demand we've long been anticipating has been borne out since Beijing lifted its Covid restrictions at the start of the year. And since the Macao properties' cost structure was reduced to minimize losses during the lockdowns, the operating leverage as revenues recover has been both notable and underappreciated by the market. Management's confidence in the future was one big reason why the company reinstated a quarterly dividend, at 25 cents per share. Despite recent weakness due to fresh Covid concerns, the May CGR numbers numbers for Macao indicate that there has not been any material slowdown in gaming. Wynn stock is still up nearly 17% year-to-date, and we believe China's long-term economic recovery is on track. At the same time, continued record performance in Las Vegas and at Encore Boston Harbor only add to the stock's appeal — with the numbers far more resilient than what the stock gets credit for. (Jim Cramer's Charitable Trust is long WYNN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Macao's government relies on casinos for over 80% of its income, with most of the population employed directly or indirectly by the casino industry.

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