Wednesday, October 3, 2007

A Top in the Casino Names? Wynn (WYNN) and Las Vegas Sands (LVS)?

I have been watching in amazement at the run in the 2 US casinos with exposure to ... you guessed it ... 1.3 billion gamblers in Macau, Wynn Resorts (WYNN) and Las Vegas Sands(LVS). The last time I was in these stocks was oh... 50% lower. Even the dog of the group, Melco (MPEL) has run even though they have shown no ability to run a company.

Now an interesting thing happened a few days ago, the very shrewd Steve Wynn did a secondary offering raising nearly $700 million.

I am harking back to other very shrewd people and did a Google search on Sam Zell and Steve Schwarzman, and found a blog entry by The Peridot Capitalist back in June 2007 during the IPO of Blackstone Group (BX).
  1. Zell sold his stake in Equity Office Properties (EOP) - which turned out to be the peak for the commercial office market.
  2. Schwarzman sold his stake in Blackstone Group (BX) - which turned out to the peak for the private equity boom (ask shareholders unfortunate enough to buy a stake in BX near $38, current price $26, after falling to $21)
  3. Is this the next one? If one man knows casinos its Wynn. Is he saying, hey people - yes I realize 1.3 billion gamblers will arrive on our shores soon enough but this valuation you gave my company is a bit over the top and frenzied.
Now I am not saying these companies are going to go to dust - no way Jose. Wynn Resorts and Las Vegas Sands are going to continue to be great long term opportunities, but these near term rises in share prices have turned the risk/reward ratio firmly in the hands of the "RISK" in my opinion. And I think Wynn might be signaling this to us as well.

Folks, Wynn Resorts (WYNN) was a $100 stock 60 days ago, its up 70% touching $170 of late. Las Vegas Sands (LVS) was $95 and peaked at $145 yesterday, up 53%. (laggard!) Even sad sack Melco (MPEL) which could not get out of the way of itself for the first 8 months of its public existance (IPO $23, down to $11 by mid summer) is up 46% as investors chase "worst of breed".

I don't have a stake in this area, but watch it closely as it represents what this fund is all about - a sea change, a big long term opportunity but at this point the price of these stocks have reflected this opportunity (and more) for the near term. Is Wynn telling us what Zell and Schwarzman did? That they will (smartly) take advantage of the sweating panting unwashed masses who group think and drive valuations past the point of sense? Technically there is a LOT of air in between current prices and any meaningful support in these charts.

I can't short in this fund, but if I could.....

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