Hold off on Buying this Volatile Bet 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 strong week for U.S. markets with the Dow Jones up 2.06% and the S&P 500 rising 2.29%, hitting new record highs. Global markets as a whole continued to lag with the MCSI Emerging Markets Index up only 0.64%.

The exception is, of course, Japan, where a bull run continues with ProShares Ultra MSCI Japan (EZJ) up 7.11% over the course of the week. With your related August 2013 DXJ 45 call options up 83.33%, you may see another triple-digit percentage gain before the end of the week.

Bank of Ireland (IRE) also rose 4.46% as the stock briefly breached the $9.00 level before pulling back. You were, however, stopped out of Community Health Systems, Inc. (CYH) at a loss, hit by uncertainties around Obamacare. You also stopped out of Market Vectors Vietnam ETF (VNM) for a loss this morning, as its share price dropped along with China’s market.

This week’s Bull Market Alert recommendation, Melco Crown (MPEL), takes us to Macau — Asia’s Las Vegas — a theme I explored last month in The Global Guru. Because of negative news from China overnight, I am recommending that you hold off on buying the recommendation today as you might get a much better entry point in a day or two.

Melco Crown operates two casinos in Macau: a mass-market casino called City of Dreams in Cotai, and Altira, a VIP-focused casino. MPEL also owns 60% of another casino project in Cotai, which is scheduled to open in 2015. Melco will soon open a resort in the Philippines in mid-2014.

Back in 2007, revenues for Las Vegas and Macau were pretty much equal. Today, Macau’s gambling revenues are 6x that of Las Vegas. Put another way, Macau generated more revenues in 2012 ($35.6 billion) than the entire U.S. gaming industry. That includes Las Vegas, Atlantic City, and Indian casinos — combined.

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After pausing for breath last year, Macau gaming revenues soared another 25% in March compared to the same month a year ago, hitting a new record of nearly $4 billion. Sterne Agee analyst David Bain thinks the March record revenue in Macau is just the first of a possible six record months this year. Fitch now expects total Macau gambling revenue in 2013 to rise 11%, up from its earlier forecast for an 8% hike. In light of March’s numbers, that is looking ever more conservative.

After all, revenue from “mass market,” or middle-class tourist gamblers, is rising at a 20% to 25% clip. Not coincidentally, that number just about matches analysts’ expectations of 28% earnings growth in 2013 and 25% in 2014. The impact on Melco itself is clear: bigger upside than ever before. That’s why JPMorgan upped its target on MPEL to $29 — an 18.64% upside from its closing price on Friday.

Here are a couple of caveats about Melco. First, it is a super-volatile stock with a beta of 2.69. That means it is almost 3x as volatile as the S&P 500. Second, it is hyper-sensitive to global and Chinese gross domestic product (GDP) trends. And China just announced disappointing GDP numbers, causing Asian stocks to sell off. Once this short term “China Panic” subsides, MPEL will offer you a better entry point.

So, I am going to recommend that you hold off on buying Melco Crown (MPEL) today. But keep your eye out for a “special alert” — probably sometime this week where I’ll be recommending specifically when to initiate your position in this recommendation.

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Portfolio Update

Bank of Ireland (IRE) gained 4.46% last week. The Irish Fiscal Advisory Council (IFAC) released its latest fiscal report last week, stating that the Irish government will have its budget woes under control by 2015. Ireland also expects to regain full access to debt markets after its final bailout loan dispersal at the end of the year. IRE is a BUY.

ProShares Ultra MSCI Japan (EZJ) gained 7.11% last week to hit another new 52-week high on heavy buying volume. You sold half of your position, as well as half of your options, in EZJ last week to book gains of 13.77% and 71.43%, respectively. The rising Japan markets, coupled with the weakening yen, are allowing EZJ to profit handsomely. The Japanese recovery continues full steam ahead. EZJ remains a BUY.

FleetCor Technologies, Inc. (FLT) gained 2.37%. Although FLT’s earnings report is still several weeks away, FLT has a habit of beating the street — and quite handily at that. FLT delivered better-than-expected earnings in three of its four 2012 earnings reports, and those reported earnings figures averaged 10% above consensus estimates. FLT is a HOLD.

Sony Corporation (SNE) traded flat last week. SNE marked time last week as its sideways consolidation trading continued. However, with the wildly positive Japanese market action, and fiscal stimulus tipping the scales in favor of exporters like Sony, SNE is due to take off any time. SNE also has an earnings report due on May 9, which should spur traders to get off of the fence. SNE is a BUY.

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