Casino Stocks Are Up Big—Here's Why

If you placed a bet on casino stocks one month ago, congratulations, you’ve beaten the house. MGM Resorts International MGM is up nearly nine percent, Las Vegas Sands LVS is up about 9.5 percent, and Wynn Resorts WYNN is up more than five percent.

On Monday, these same stocks had another strong day, easily beating the overall market that also saw a lot of buyer interest.

Why such an interest in these names? Don’t discount the power of momentum, technicals, and any number of irrational forces but the fundamental story revolves largely around Macau—an area of southern China that is the only place in the country where casino gambling is legal.

Macau generates annual gambling revenue of more than $38 billion—five times more than Las Vegas. Because of the explosion in popularity, Macau is looking to expand to nearby islands—a bullish story by itself.

There was a glut of news that broke over the weekend that fueled the rally. First, privately held Macau company, SJM Holdings said it will build the Palazzo Versace—a new hotel and casino that will include 700 gaming tables and 2,000 rooms along with a price tag of $3.22 billion.

Related: Poker Leader Matt Showell Sees High Value In Online Gaming

MGM, Wynn, and Las Vegas Sands already operate resorts and casinos in Macau. Why would news of a new competitor send these stocks soaring? Because bringing more people to the region is a win for everybody—not just a single casino.

Then there was China trade data released over the weekend that looked better than expected, a higher than usual “win rate”—the amount of time the house wins instead of the player, and the fact that Japan won the right to host the 2020 Olympics which may prompt it to legalize gambling.

Finally, Stern Agee said that its checks in the region indicate Macau gambling revenue is up 26 percent year over year.

But not only were these stocks up Monday, they reached 52 highs. The continued strength comes from the steady recovery in the industry as a whole. Gaming revenue in Vegas was up 0.31 percent year over year—not something to celebrate but the economy still hasn’t left a lot of room for a trip to the blackjack tables so any increase is considered a win.

And finally, the Macau story isn’t new. Investors are watching the area closely and all signs point to continued explosive growth.

Disclosure: At the time of this writing, Tim Parker had no position in the companies mentioned.