Once its three casinos are open, Melco will be a major player in the Macau market, where growth shows no signs of slowing. The stock looks quite reasonable today at around $19; however, all Macau casino stocks could pull back soon given their tremendous runs lately.
A U.S. recession, which some economists fear is looming, would no doubt be bad news for the hotel industry. Nonetheless, Starwood's strong international brand expansion opportunities remain compelling.
If the company can achieve revenue growth of 7% per year, and margins continue to expand from pricing power, then I calculate the stock is worth around $70 using a discounted cash flow model. Taking into account share buybacks or takeover premiums could lift that price target further.
Blackstone Group's (BX) agreement to acquire rival Hilton (HLT - Get Report) spurred hopes of a Starwood buyout, but the takeout premium has since left the stock because of credit-market worries. But at around $62, the stock is very attractive.