- The market sell-off compels us to action. It’s time to break out the clichés.
For those hardy fellows standing by their fundamental analyses and seeing every reason to hang onto stocks, remember: The market can be irrational longer than you can be solvent.
For all those panicky new bears ready to sell at these lower prices and short everything in sight, remember Warren Buffet’s advice to be greedy when others are fearful.
Another Buffet pearl: Wall Street is full of very smart, hard-working people looking for needles in the haystack. He likes to search for haystacks. Thus, Buffet’s investments in companies like Gillette, saying it gives him comfort knowing that 3 billion men have to shave every day.
So, what the heck does this have to do with gaming stocks, you ask?
The answer is that there are plenty of short-term reasons for different investors to be forced to sell: they borrowed to buy and now their fate is in debtors’ hands, for example. They live by short-term trades, and those trades have gone south and look like they’re going to stay south, and maybe much further south, like the equator.
But to long-term, debt-free investors, the current market presents opportunities: buy now and hold on for the ride, as tumultuous as it might be, knowing that valuations are attractive right now and gambling is not going away and, in fact, is a future wave. Or wait for even more disaster. Remember when Las Vegas Sands, as an example, sold in single digits in the financial melt-down of the Great Recession? Anybody who bought LVS at $4-something a share and hung on made a lot of money, even at today’s prices.
If you’ve noticed, the word debt has been mentioned several times in this column. That is because, in good times, debt is your friend. It allows you to use other people’s money to grow a business, or an investment portfolio.
But in bad times, debt can be your enemy, difficult to service or called on technical defaults, an albatross rather than a springboard to mix metaphors.
So, in this uncertain environment, what companies combine manageable debt with growth prospects? Two come to mind, and from entirely different worlds: Monarch Casino and Las Vegas Sands.
Both companies have growth engines. Monarch has its project to transform its casino in Black Hawk, Colorado, into a destination resort. Las Vegas Sands has Macau and, further distant, perhaps Japan if it wins a casino license there.
Both have CEOs and major shareholders averse to debt, though they have used it prudently.
If prices fall, Monarch and Las Vegas Sands are positioned to take advantage because they will have borrowing power when others do not.
Further, their cash positions could strengthen as major capital projects move into the rear-view mirror. Monarch, for example, could find itself debt-free not too long after its Black Hawk project opens if it generates the $60 million or $70 million a year in EBITDA that some observers expect.
Las Vegas Sands has its Londoner project in Macau to finance, but that is well within its means while still allowing plenty of flexibility to finance a Japanese mega resort if that opportunity arises in a couple of years.
In summary, two more clichés:
When everyone is flying high, cash is trash.
When times get tough, cash is king.
