Barron’s cover story discusses casino stocks, which are up 173%, 140% and 127% in 2ys, for Las Vegas Sands (LVS), Wynn (WYNN) and MGM (MGM), respectively. "Some investors seem to think high margins are perpetual and are disappointed when they find out otherwise, but you're starting to see margins pressured as supply gets saturated and competition increases," says Wahid Chammas, of Janus Capital. 2ys ago, Chammas advocated betting on Macau while the public wavered, but he is more circumspect today. "The story has been discovered." While Wynn and LVS have upped Macau's wow factor, nearly everyone is building and renovating. Cash-flow margins of around 30% will come under pressure with competition, possible discounting, and as all-important junkets, which bring tourists to Macau and hence control customers, lobby for a bigger slice of the take. Another correction of 25-30% would merely take LVS and Wynn to levels they were at in July, and they'd still be richer than their peers on most valuation measures. Today, even after the recent declines, LVS and Wynn sport enterprise values that are 34 and 22x their respective ‘08 Ebitda. To put that in perspective, Harra’s (HET), which has no Macau casinos, is being acquired by buyout firms at a comparable 9.9x multiple. "Betting on these stocks is like betting on the winning horse after the race," says David Trainer, of New Constructs. He thinks LVS and Wynn are overvalued. "Their current mkt valuations imply huge future cash-flow growth." Another co mentioned as “pure play on Macau” – Melco PBL (MPEL), whose shares fetch 164x ‘08 earnings.
Fund manager likes BBBB, SKIL, CPLA, ININ, PRXL, KNDL, WMGI, NUVA, BUCY and KDN.
Eli Lilly (LLY) shares look like dead money following a mixed test result for its experimental anticlotting drug. They could drop another 10% if the product doesn't generate sales.
Archer Daniels Midland (ADM) shares are too expensive, given the uncertainties about margins and earnings in the next few quarters. A 20%-30% decline would make them palatable again.
Barron’s: With earnings strong and dividend yields approaching those on Japanese government bonds, expect a rally in Japan's stock market, one of the developed world's cheapest (SNE, CAJ, TM, NMR, EWJ, JOF).
Compared with other money-management firms, Och-Ziff (OZM) looks quite overpriced. And that would hold true even if its stock were 5 to 10 points below its current price.
Sasol's (SSL) ADRs have soared about 400%, to just north of 50, since they were listed in 2003. The stock could be worth about 70 in a year if oil prices stay high.
“The Trader” section discusses EchoStar (DISH), saying that in the past, price reportedly prevented marriage with AT&T (T).
