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Casino Stocks: Which Are the Best Bets?

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BOSTON (The Street Ratings) -- Even as Las Vegas builds up, American's gambling capital has lost out to Macau.

Macau, an autonomous territory facing the South China Sea, has become a major driver of revenue for many U.S.-based casino operators, which have wisely expanded overseas. Macau gaming revenue has set records each month, with April's $2.6 billion marking a 45% percent increase from a year earlier. Its casino revenue will probably grow 35% to about $32 billion this year, according to estimates by CLSA Asia Pacific Markets.

Las Vegas, while a more mature market, has been on the mend since the fallout from the recession. Visits to Las Vegas increased by 5.6% in March (helped by a 10% jump in convention attendance), with gaming revenue on the Las Vegas Strip up nearly 13% since last year. At the end of 2010, national accounting firm PricewaterhouseCoopers predicted that Las Vegas gaming revenue should return to pre-recession levels by 2014.

So how should an investor play the predicted growth in the Macau market or take advantage of a continued recovery in Las Vegas? I screened casino and gaming stocks to see what TheStreet Ratings' quantitative model favors.

Of the six companies licensed to operate casinos in Macau, three are major Las-Vegas based casino companies: Las Vegas Sands (LVS), Wynn Resorts (WYNN) and MGM (MGM). Melco Crown Entertainment (MPEL), which is focused exclusively on the Chinese casino industry, is also traded on U.S. exchanges.

Of the aforementioned casino operators with Macau exposure, only one, Wynn Resorts, is rated "buy," with a $187 target price (offering potential 31% upside), according to TheStreet Ratings' model. Las Vegas Sands and Melco are rated "hold," while MGM is a "sell."

Wynn, which has a 15% market share of gaming revenue in Macau, has plans to build a new casino, which will double its business in the territory when it opens in four years. Amazingly, Wynn Macau's first-quarter revenue of $865.7 million accounted for two-thirds of Wynn Resorts' $1.2 billion in total revenue. The company has shifted much of its attention to its China-based operations.

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