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One of my best picks thus far on this site has been MGM, which I first recommended in October. Lately, it has been on the move thanks to the private equity guys hiding in the shadows and a general euphoria in the industry. Also, the “Macau effect” has been a major driver for the likes of LVS/WYNN and to a lesser extent MGM.

From an industry view, the earnings picture in these names looks somewhat extended. Of the seven companies that I follow, only three are trading cheap to growth. Using PEG only, WYNN looks the cheapest but at the same time, is trading at 45x forward earnings. LVS is the most expensive of the names trading at 58x forward earnings.

Once factor that supports (or creates a resistance for) these stocks prices is the direction and movement of the US 5 Year Note. As I mentioned in my analysis of MGM, the gaming names generally following the direction of the yield of the five year note. So a rise in rates in this area of the curve has often been followed by the casino names moving higher. This basically implies that the 5 year note is the direction of the economy – as it moves up, the economy picks up steam and more people game. Conversely, as the yield falls, the economy is slowing and less people make it to the casino.

Here is a rundown of the seven names followed.

MGM Mirage (NYSE:MGM)

As readers know, this has been a favorite stock of mine since October when I purchased it for the portfolio at $41. Now at $68/share, I have to wonder if this is still worth owning at this point. At 28x forward earnings (I expect $2.50 per share on a forward basis), the company is above is normal PE trading range. While growth is strong, the company is now trading at 1.25x growth. Since the PE of this company is above 20x on a forward basis, the company is stretched from a valuation standpoint. However, there is upside to the stock thanks to the under valuation of the consensus earnings expectation.

Technically, the company is trading at its strongest levels ever. The stock is now 65% over the 65 week MA of $41. The move in the RSI is also the best ever for this stock (and most extreme). My original analysis of this stock put the top of the run around $59/share. Now that the stock has moved almost 2 standard deviations (another 12 points is 72), I would be inclined to sell a portion of the stock imminently.

Las Vegas Sands (NYSE:LVS)
LVS has been a steady performer this year and has dumbfounded the likes of Jim Cramer at times. The company has been trading at a premium to growth for much of the year and yet continues to climb each and every day. Perhaps this has to do with the large short interest involved with the name. In any event, the company is expected to earn $1.85/share on a forward basis implying 32% growth. While solid, the PE sits at 59x on a forward basis making the stock trading at 1.84x its growth rate. Since my forecast of 1.85 is about .07 higher than the mean, there appears to be upside to this earnings number which supports the stock. Also the fact that they have not missed expectations and beat over the last four earnings periods is helpful.

Technically, the stock is rubbing up against its second projection area at $105. The last few projection areas that the stock has hit have served as areas that a correction began (and they were harsh!). From the non chart models, the stock is trading at nearly 71% above the 65 week MA which is near its historic highs using this metric. I would have previously taken a small amount of profits around 92. I would be inclined to close the rest of the position today since it has hit its projection point. I would not short the stock though as the earnings upside could support the stock up here. At the same time, I would consider puts if the stock were to break through 95.50 or so.

Wynn Resorts (NASDAQ:WYNN)

Wynn is expected to see a very sizable earnings jump into 2007 with much of this thanks to Macau. The question is, how much more will Macau add to earnings in 2008. From a few reports I have seen thus far, some are forecasting around $2.90/share for 2008 which implies growth of roughly 14x on a forward basis. So using 2007 numbers as my “forward” numbers, the stock is cheap. So this is how I play it. From a PEG basis, this company is cheap till the end of the month. The beyond that (and earnings), I start focusing on the 2008 period and based on these numbers, the stock is expensive at 2x forward growth. Since it has made a habit of missing earnings, the stock is a bit of a worry to me heading into earnings.

Technically, the projection on the previous breakout argues for $100 per share. With the company trading higher than this level, it is trading at an extreme level to some extent. Technically the stock is somewhat extended at 50% over the 65 week MA (I say somewhat in relative to the other names in this sector). The RSI is not extreme though on this move which could imply more upside in the stock. If I were trading this name, I would hold my current position with a stop around $100. I would consider puts if the stock continued to skyrocket higher or perhaps on a break through $96.50.

Isle of Capri Casinos (NASDAQ:ISLE)

ISLE has been stuck in the background of the casino rally for the past year. It has remained range bound and recently bounced off the 20 area (and the 65 month MA) targeting the $30/32 area in the coming months. Earnings wise, the company will report lower earnings than a year ago for 2007 but “back to normal” earnings for 2008. It has been a lousy company to own going into earnings as it has missed its consensus number the last few times rather substantially. While the stock is trading cheap to its 2008 numbers, the PE is still higher than a year ago and will be in 2008 relative to 2006 numbers. Can you say earnings volatility!

The bounce from the 65 month MA was a major event in my opinion though and has helped propel this stock higher. While this bounce is important, I would have taken a portion of that bounce at the beginning of last month around $29. Current trends are wavering in the stock and perhaps the top of this run was a few weeks ago. That said, if I were short, it would be from the $29 level. Above that opens a gap up to the $32 area. From this, I would be somewhat bullish though given the 29 level has good resistance, I probably would only have a half position. Call it cautiously bullish.

Boyd Gaming (NYSE:BYD)
Boyd is another one of those companies suffering from earnings volatility. Earnings are expected to be lower in 2007 versus 2006 though in 2008, earnings should return to trend, higher by 25% from 2007. BYD was a great stock to own from 2003 into 2005 but has gone sideways since. Earnings dipping for next year could be the major drag on the stock and with 2008 far away, the stock has not exactly been following the pack. I am using $2.00 for 2007 and $2.40 for 2008 based on the various projects that come online. This implies growth of 20% (nice round number) and a forward PEG ratio of 1x. With the PE over 20, I would not be a buyer of the stock at this point on a fundamental basis.

Technically, the story gets somewhat interesting. From a bearish perspective, the stock is rubbing up against a trend line drawn from the previous two tops on the monthly chart. A break of this could imply a sizable move to the upside. From the excel models, the stock does not look to be moving at any particularly extreme rate and with the turn higher above the 65 week moving average, the stock is trending higher. Buying pressure has also jumped higher supporting the move. I would be cautiously bullish though as the resistance above may contain the stock. I would hold a half position at this point.

International Game Technology (NYSE:IGT)
IGT has a very nice looking chart. However, the stock, based on valuation, is a bit stretched. At 1.23x earnings, the stock is a trading at a premium to the level I would enter a trade on this name. I am using $1.42 and $1.81 for 2007 and 2008 earnings respectively. Supporting higher number though for IGT is its penchant for beating estimates. So if that is the case, I think there will be some upside to my estimates in both years. There is also the Macao factor that may propel earnings even higher.

Technically, as mentioned, the stock has a nice chart and is breaking out. Will it go straight up from here? I don’t think based on the fact that it is now 30% above its 65 week MA – it paused the last time it hit this level before rising a month later. Supporting a continued move higher is the buying pressure model which is very strong. From the information, I would be a bull on this name but this is more aggressive because of the valuation. A return to the previous range would be a very bearish development and implies that the stock could trade back to 1x growth.

The9 (NASDAQ:NCTY)

I am doing some work on NCTY so the fundamental side of this analysis is incomplete. However, using the current 06 and 07 numbers, I would be bullish on NCTY but since I do not have an 2008 number yet, I would not support my case with the fundamentals necessarily (though the stock is cheap at the moment). As for the technicals, the stock broke out last month and is on the move higher. The move is becoming somewhat extreme so a pullback might not be out of the question. Based on current information, I would be bullish on the stock though I would not be surprised if it pulled back in the coming weeks.

NCTY vs. MGM vs. ISLE vs. LVS 1-yr chart:



WYNN vs. BYD vs. IGT 1-yr chart:

Source: A Closer Look at Casino Stocks