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Berko: Don’t place bets on LVS recovery; sell

By Malcolm Berko

Published: April 2, 2016, 6:03am

Dear Mr. Berko: Ever since I bought 200 shares of Las Vegas Sands at $84.75 two years ago, its value has done nothing but go down. Why? What do you know about Sheldon Adelson, who runs this business? Is he a capable person? I frequently see him on television and read stories about him in the newspapers. Should I hold, sell at a loss or buy 200 more shares?

— B.K., Cleveland

Dear B.K.: I know little about Adelson, though I’d recognize him anywhere. This brilliant, Boston-born entrepreneur, who owned a business at age 12, is a classic rags-to-riches story. Today, he has become a dumpy fellow who wears an ill-fitting toupee. He is also a mega-contributor to political candidates and just paid $140 million to buy the Las Vegas Review-Journal, Nevada’s largest paper. Sell your shares.

One of the richest guys on earth, Sheldon — estimated to be worth $29 billion– is the CEO of Las Vegas Sands (LVS-$53), which generates 61 percent of revenues from its Macau properties, 30 percent from its Singapore properties and 9 percent from properties in Las Vegas. LVS is a panoply of extravagant hotels, opulent gambling theaters and palatial vacation resorts, namely The Venetian Macao, Sands Cotai Central, Four Seasons Hotel Macao, Sands Macao, Marina Bay Sands, The Palazzo and a dozen other venues.

These are monuments to Sheldon’s obscene wealth and a playground for his sycophantic toadies who mix and match with the new rollers from oil-producing and commodity-rich countries. They are the newly rich Russians, Libyans, Saudis, Americans, Iranians, Nigerians, Kuwaitis, Mexicans and Venezuelans. And they are the nexus of Sheldon’s falling net profit margins.

The success of Sheldon’s empire is a function of oil prices. As long as oil traded above $90 a barrel, the odious gaggle of newly rich and poseurs had money to burn. And Sheldon’s vulgarians burned it, lighting cigars with $100 bills, paying $25,000 for a bottle of wine and leaving $1,000 tips for cocktail waitresses.

Now with oil at $35 to $40 a barrel, many high rollers have become “no rollers,” and Sheldon is beginning to worry. During the past 12 months, LVS’ casino revenues fell by 30 percent, and those revenues are not expected to recover. In the past 11 years, his Asian properties have generated 89 percent of its revenues and 92 percent of its net income. As Asia goes, so do Sheldon and LVS. And Asia (think China, too) seems to be in deep doo-doo!

Sell LVS; your chances of breaking even are not good.

Revenues from Sheldon’s Macau properties have been slacking. Now the Macanese and Chinese governments want to transition the region toward being a nongaming destination rather than one dominated by high-end gambling. Sheldon’s Singapore properties are part of a heavily saturated market and can’t provide meaningful growth.

Sheldon’s Las Vegas properties are facing tough competition from regional casinos, as well as new regional properties, which are putting constant pressure on LVS’ earnings.

Making matters more difficult, tour operators are directing their junkets to Australia, Japan, South Korea and Vietnam. The costs are lower than in Singapore and Macau, and those governments are aggressively courting new business.

But Sheldon continues to expand his bets with a greater Asian presence. Part of that presence will include two new properties: an obscenely extravagant St. Regis Macao and a lavishly gilded, $3 billion Parisian Macao. Even though LVS’ dividend yields 5.4 percent, I’d sell the stock.

Gabelli, Credit Suisse, Thomson Reuters, Market Edge and S&P Capital IQ have “buy” recommendations, with a high target price of $59. And many prominent mutual funds own significant positions, so I might be wrong. However, “insiders” recently reduced their position by 9 percent, and I’d prefer to follow.

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.

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