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Melco (MPEL) is a great growth play on the new gambling capital of the world. Macau surpassed the Las Vegas strip in terms of gaming revenues in 2006. In 2007, Melco had an eight percent share, which should increase with Melco's new developments.

The stock has moved significantly in price over the past year. Jim Cramer once backed the stock and gave a $40 target price. He since has been bearish on the stock and casinos in general currently. The stock was upgraded by UBS in January of this year after the stock had dropped into single digits. The stock has dropped from the $20 range last October due to a rumor of teaming up with Harrahs (HET).

Melco went public in 2006 and also sold another round of shares in 2007 to raise additional funds for building new casinos. The company is one of six companies to hold a gaming concession or sub-concession in Macau. It holds a sub-concession from Wynn (WYNN) Macau. In the 2007 annual report, the company had $835 million in cash and $615 million in debt. The company increased revenue from $36 million in 2006 to $358 million in 2007. Melco posted a loss per share last year on double the number of shares it had in 2006.

The increased revenue was due to the opening of the Crown Macau. This high end casino hosts 216 hotel rooms and has 183,000 square feet. The casino is the highest grossing VIP property in the world. The company also generates revenue from 1,000 Mocha Club gaming machines.

The company's newest casino, City of Dreams, is scheduled to open phase one in the first half of 2009. The casino will have 420,000 square feet of gaming space. The City of Dreams property will also have three hotels with 300, 330, and 800 rooms. Apartment style rooms will also be added in the second phase of development. The development is on schedule according to the company's website.

The company also has development plans for a casino on the Macau Peninsula. Eventually the company would then own three casinos in Macau, which would increase its market share, setup the possibility for a partnership, or a possible buyout. Recently the Macau gaming commission has announced that they will not hand out any more gaming licenses in Macau until research is done which makes Melco's sub concession very valuable.

I am sticking behind this stock for the long run. With the stock in the $15 range now, I see it doubling by late 2009 after results from the City of Dreams are first released. It will continue to go higher as it builds on the peninsula after that.

Disclosure: none

Source: Melco Should Benefit From Expanding Macau Market Share