A “Pure Play” on Asia’s Las Vegas

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
It was a good week for your Bull Market Alert portfolio, as your position in Bank of Ireland (IRE) soared 16%. This jump is actually the first time that Bank of Ireland (IRE) has traded above its 50-day moving average since early September and indicates the kinds of gains that are possible with this kind of a position.
This week’s Bull Market Alert pick focuses on “Asia’s Las Vegas” through Melco Crown Entertainment Limited (MPEL). Melco is an operator of casino gaming and entertainment resort facilities focused on the fast-growing Macau market — the only Chinese city in which casinos are legal. And although I am skeptical of investing in Chinese state-owned companies, Melco is a privately owned company that is truly thriving in exploiting one of the biggest opportunities in Asia.
Macau became the world’s biggest gambling hub in 2006, overtaking the Las Vegas strip in terms of revenues that year. While Las Vegas still is struggling to get back on its feet in the aftermath of the Great Recession, 2011 gambling revenue in Macau rose a whopping 42% to a record $33.47 billion — a figure that is nearly five times greater than 2011 revenues at the Las Vegas strip.
Melco is one of six licensed Macau casino operators. But unlike its other competitors, 100% of Melco Crown’s revenues are derived from Macau. Melco also is controlled by Lawrence Ho, a son of local tycoon Stanley Ho, and part of one of the region’s most powerful families. That makes Melco a local player with a leader who knows the rules of the game in a rough-and-tumble business environment.
In June 2011, Melco acquired a 60% interest in Macau Studio City, which is shaping up to be the premier gaming spot in Macau when it opens in three years, thanks to its location. The casino will be located right next to the Lotus Bridge immigration station, making it the first and most visible casino on “the strip.” As a result, Melco stock was hit hard this past summer on fears of a dilution of existing shareholders to finance this major development. But with roughly $1 billion of cash in the bank, the company’s management has assured investors that Macau Studio City will be funded strictly out of cash and ongoing cash flow. Since then, Melco’s stock has been making a gradual recovery.
Recent financial results for Melco confirm its remarkable growth rate. For the nine months ending September 30, 2011, Melco reported net revenue of $2.8 billion. That’s a 90% increase in revenues compared to $1.9 billion during the same period in 2010. Net income hit $187.1 million. That equates to $0.35 per American Depository Receipt (ADS) compared to a net loss per ADS of $0.05 for the comparable period in 2010. When the company announces its next set of earnings on Feb. 20, I expect earnings to hit $0.50 per ADS for all of 2011.
The recent pullback in the stock makes it a good time to buy Melco Crown Entertainment Limited (MPEL) at market today. Place your stop at $8.30. For even bigger potential gains, I recommend the July $11.00 call options, (MPEL120721C00011000). In the interest of full disclosure, I also want you to know that I hold MPEL for my clients at Global Guru Capital.

Portfolio Update

Alexion Pharmaceuticals (ALXN) ended the week nearly flat, gaining 0.23%. The Food and Drug Administration classifies ALXN as an “orphan-drug company” — meaning it creates drugs for diseases that are “extremely rare.” This designation gives ALXN the benefit of special incentives such as faster drug review, tax incentives and longer drug exclusivity periods. Alexion reports earnings on Feb 9. ALXN is a BUY.
Bank of Ireland (IRE) jumped 16.36% over the past five trading days. Standard & Poor’s cut the long-term credit rating of several European countries over the weekend. However, Ireland managed to escape the knife. Although still on “credit watch negative,” the Irish recovery is on track. IRE moved above its 50-day moving average and is now a BUY.
National Bank of Greece SA (NBG) rose 4.00% last week. Greek Prime Minister Lucas Papademos said he was confident that Greece would be able to negotiate payment of a 14.5 billion euro debt payment due in March. That said, without a 130 billion euros bond swap, this week would raise the prospect of default. NBG is a HOLD.
Companhia de Bebidas Das Americas (ABV) recovered from last week’s loss, rising 4.18%. ABV has tested the $36 price level twice since mid-August. This price level is very near the stock’s 52-week high. ABV took a solid bounce off of its 50-day moving average last week and likely will retest its 52-week high again. A break past this level is a very bullish sign. ABV reports earnings on March 1. ABV is a BUY.
ProShares Ultra S&P500 (SSO) gained 1.92%. This “double long” exchange-traded fund will add some horsepower to your portfolio if SSO once again successfully tests the 200-day moving average this week and moves upwards. SSO is a BUY.
MasterCard Inc. (MA) dipped 1.12% last week. The European Commission announced Wednesday that it wants to double online business by the year 2015. A large part of this goal will be through payments by card and would mean a huge windfall for MasterCard. MA will report earnings on Feb 1. MA is a HOLD.
Ford Motor Co. (F) gained 2.82% over the past five trading days. Ford reported Friday that its sales in 19 core European markets increased 2.4% over the past year. Ford will announce earnings on Jan. 24 and pay a $0.05 dividend on Jan 27. F is a BUY.
Intuitive Surgical, Inc. (ISRG) remained flat, losing 0.22%. ISRG will announce earnings, today, Jan 17. Intuitive Surgical has reported better-than-expected earnings and better-than-expected revenue in more than 80% of its past earnings reports. ISRG remains a BUY.

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