Narancich Quoted in Reuters

Investors eye gaming stocks beaten-down by China headwinds

by Ross Kerber 

Shares of U.S. gaming companies operating in Macau have tumbled on worries over China but some investors now see them as a buying opportunity, despite a slowing Chinese economy and volatile stock market.

Shares in Wynn Resorts Ltd have lost over half their value since last year and those of Las Vegas Sands Corp are down nearly 40 percent from their 2014 high. Beijing's currency devaluations have put further pressure on these companies which run gaming resorts on the Macau Peninsula across the Pearl River delta from Hong Kong.

Still, some influential investors think the stocks may be oversold.

"There are some beaten-down sectors in China now. I would go so far as to say that Macau gaming is an undervalued asset," said Mark Kiesel, chief investment officer for global credit for Pimco.

It owns debt in the sector, and Kiesel said he expects new infrastructure will bring more people to the resorts.

Also enthusiastic are the managers of Longleaf Partners Small-Cap Fund, advised by Southeastern Asset Management. In their most recent commentary the managers wrote that "Weakness in the Macau (China) gaming market provided the opportunity to purchase Wynn Resorts at a substantial discount to our appraisal." Southeastern is now the sixth-largest holder of Wynn.

Representatives for Wynn and Sands did not return messages. Wynn shares closed at $94.62 on Thursday, down from their high above $246 last year. Sands shares closed at $53.12 on Thursday, down from their high above $87 last year.

Skeptics still seem to outnumber the value-driven investors putting money into the stocks.

Shawn Narancich, executive vice president of equity research and portfolio management at Ferguson Wellman Capital Management, said his firm sold about 360,000 shares of Las Vegas Sands last year as they fell in value.

With several new resorts about to open in Macau he worries supply may outstrip demand, especially amid other headwinds like a Chinese anti-corruption campaign that has hurt gaming revenue in Macau, down 35 percent in July.

"It's hard for me as a money manager to make the case to return to the stock," Narancich said.

In commentary posted on July 27, managers of Wintergreen Fund wrote how they sold their holdings of Wynn Macau - majority owned by Wynn Resorts - in the first quarter of this year, citing weakening economics.

"Without a firm or improving business environment for gaming companies, it is very difficult for casino stocks to perform well," they wrote.