It’s been busy over at MGM Mirage (NYSE: MGM), and not entirely in a good way.
Billionaire investor Kirk Kerkorian has been talking about dumping his 37% stake, the Chinese government has come up with new casinos hurdles, and MGM has been trying to raise $2 billion for a Macau IPO similar to rival Las Vegas Sands (NYSE: LVS) and Wynn Resorts (Nasdaq: WYNN).
The interesting thing is that against this convoluted backdrop, institutions have been adding to their stakes in MGM.
Seven out of the top ten institutional holders have opened new positions, or added to current holdings. For many it’s prudent dollar cost averaging, but it might be a little more than that.
The top nine institutions holding MGM added a collective 71 million shares to their portfolios. Institutions like T. Rowe Price, Fidelity Management, Janus Capital, Barclays Global and Vanguard are a who’s who of capital management.
To see why they are piling in we need look no further than Macau.
Macau: China’s Gambling Mecca
The nascent resurgence in gaming stocks seemed to come to a screeching halt recently as the Chinese government announced that they would increase regulation on Macau casinos.
Specifically they want to target the number of slots, move the location of gambling halls away from neighborhoods, set decency rules to curtail prostitution and age limits to stop underage gambling.
The proposed changes seem to have sent a chill up the spines of the casinos. It’s very apparent that the street is concerned these rules may throw cold water on the Macau party.
But they’re all wrong.
In fact, these new rules will protect and even enhance the profits that these casinos can make overseas at Macau.
By limiting the number of new licenses, they effectively bar new participants from entering their market, and by specifying where a casino can be located, they encourage the travel to centralized gaming centers – namely the mega resorts into which these companies have poured billions.
How do you spell monopoly in Chinese?
In short, the Macau casinos are going to be protected by these new regulations, which will only add to their bottom lines. Moreover, the big three American companies LVS, MGM and WYNN, which have all taken it on the chin lately, should all resume their advances.
The big institutions have been piling into the sector lately, but if you place the stock prices in perspective with their 2007 levels, these companies are still down 80% off their 2007 highs. It makes these big three casinos good bets for long-term growth.
Disclosure: No positions in any security mentioned above.