Editor's note: "Bricks and Mortar" is a mock portfolio created by reporter Nicholas Yulico that is meant to help generate real estate and gaming-related stock ideas. In keeping with TSC's editorial policy, Yulico doesn't own or short individual stocks.Melco PBL's ( MPEL) attempts to dominate the VIP segment of the booming Macau casino market have taken a positive turn. Yet, for all the supposed good news, the stock is stuck in neutral, trading at levels seen six months ago. Once again, the word is "manana." I can't help but wonder: How long will long-term investors stick around? I've been bullish on Melco since March, when I rated the stock own and included it in the Bricks and Mortar mock portfolio. At the time, many investors had given up on the name -- as did our own Jim Cramer. My thesis was that Melco shares were priced at an attractive entry point since the company's casino development pipeline would eventually pay off handily, rewarding investors. (As a reminder, Melco is the only pure play on the Macau casino market.) Since my initial rating, the stock has been a huge disappointment. Shares closed Wednesday at $13.27, down about 15% since I recommended the stock at $15.50. Over the same time period, fellow Macau casino owners Las Vegas Sands ( LVS) and Wynn Resorts ( WYNN) are up about 30% each. In May, Melco opened its first casino, Crown Macau, which is focused on VIP gambling. Results have been disappointing, and management has done a poor job of executing. All along, I've given the company the benefit of the doubt.
In other mock portfolio news, Trump Entertainment ( TRMP) shares reached a new 52-week low this week on news that Dale Black, the company's CFO, has left the firm to work for another casino company, Isle of Capri ( ISLE). This is now the second key executive to leave Trump this year, after CEO Jim Perry resigned earlier this year. I continue to recommend that investors avoid buying this name, which I flagged as overvalued back in late January, when the stock was $17.50. At around $4.50 now, I must admit the shares may be nearing a bottom. But investors should first wait for signs that the Atlantic City gambling market is recovering before touching this stock.
|Bricks and Mortar Portfolio |
A Look at How Nicholas Yulico's Picks Have Performed
|Rating Date||Price at Rating||Rating||Current Price*||Return**|
|Brookfield Properties (BPO)||1/23/2007||28.67||Own||20.33||-29.1%|
|Global Real Estate ETF (RWX)||1/23/2007||64.00||Own||60.91||-4.8%|
|Penn National (PENN)||2/6/2007||45.56||Own||58.51||28.4%|
|Melco PBL (MPEL)||3/12/2007||15.46||Own||13.27||-14.2%|
|Home Solutions of America (HSOA)||4/24/2007||4.98||Flag||1.53||69.3%|
|Starwood Hotels (HOT)||7/12/2007||72.37||Own||52.80||-27%|
|Standard Pacific (SPF)||10/26/2007||5.25||Flag||3.10||41%|
|Average Total Portfolio Return, Unweighted, (including closed ratings)||23.1%|
|Closed Ratings||Rating Date||Price at Rating||Rating||Closing Price***||Return**|
|Close At Start of Portfolio||Current Value*|
|U.S. MSCI REIT Index||1140.36||921.60||-19.2%|
|*(12/5/07 closing prices) |
**For "flagged" stocks, a drop in price is tracked as a positive for the portfolio, and a rise in price is a negative.
***Hilton closed out of portfolio on 10/26/07 because Blackstone Group completed purchase of firm.