The Best Casinos for 2015: Why Las Vegas Bets Aren't Winners

By Markets Fool.com

Last year was a tough one in the gambling industry. If that weren't enough, the problems weren't home-grown. Trouble in Macau was the main cause of pain for companies such as Las Vegas Sands , Wynn Resorts, and Melco Crown . MGM Resorts International made big gains in Las Vegas but lost even more in Q4 than a year ago. Caesars Entertainment, even without any Macaupresence, also suffered in 2014, enough to need to declare bankruptcy for its largestsegment.

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Yet even as tumultuous as 2014 was, 2015 could prove to beanother year of big changes in the gambling industry. Thankstosome new-found value in these beaten-down stocks, it could also be a year with a lot of upside for investors betting on the right companies. Here's what your best betting options look like this year.

Not MGM or Caesars
Gambling companies have seen revenue growth in the U.S. in the past year, a good sign for a recovering industry here. But a bet on the gambling industry in the U.S. is most likely either played through MGM Resorts or Caesars Entertainment. Neither of these options is very attractive in 2015, since as of now, both companies are well in the negative on reported income and saddled with debt.

MGM's coming Maryland resort, not far from Washington, D.C. Source: MGM.

MGM is the biggest winner on the recovering Las Vegas so far,with the most hotel rooms and best convention and business growth there in the past few quarters. MGM Resorts is also increasing its presence on the U.S. East Coast, with new resorts in Maryland and Massachusetts. However, MGM's recent 2014 full-year income loss proves that betting on the U.S. gambling economy alone might still not be a good bet. Additionally,with these new resorts, alongwith a new resort in China, MGM has taken on a substantial amountof debt that could be problematic if the company can't start posting profits soon.

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Caesars is the second largest gambling company in the U.S by property size and number of employees, though its market cap now pales in comparison with its competitors. With its huge debt burdens and interest expense of over $1.5 billion a year, gambling regrowth in the U.S. hasn't been enough to pull Caesars out of its income losses, either. Now the company is undergoing bankruptcy for its largest segment andis restructuring its organization, including getting a new CEO and selling multiple properties. Until the mess at Caesars gets sorted out, Caesars is probably not a good 2015 bet, either.

Wynn and Melco Crownare closer, but not the best
The VIP segment in Macau has taken a major nosedive in the last year, the main contributor to share-price drops for most of these companies. However, the mass-market segment, made up by middle-class visitors, is growing steadily, up nearly 20% year over year for the past few quarters, and is what will drive more sustainable growth there in the long term. Each major casino company in Macau is building a brand-new resort to open on Macau's Cotai strip in the next one to two years.

Melco Crown will be the first to open its resort there,withits new Studio City property to open later year, givig it a resort on either endof the Cotai Strip. The Wynn Palace, meanwhile, will open on the Cotai strip in 2016. At a cost of $4 billion, it's the most expensive of the new resorts coming to the area. The company's management expects that this resort could double Wynn's Macau EBITDA over the next few years.

Both companies could see big benefitsif Macau does boom again. However, both companies get mostof their global revenue from Macau, making them highly tied to the volatility there. Macau still looks like an interesting bet for the long term, but having a stock that's tied almost solely to that economy is taking too large of a gamble on the political situation there.

The best bet in 2015 and beyond: Las Vegas Sands
While Las Vegas Sandsis also very heavily invested in Macau,with more properties and hotel rooms there than any other company, it still has a smaller percentage ofits overall revenue that comes from Macau, comparedwith Wynn and Melco Crown.

Parisian construction from Sands Cotai balcony across the strip. Photo by the author, October 2014.

Las Vegas Sands is still making a bet on Macau. Its Parisian resort, which will open in early 2016, will include -- in addition to a 50%-scale replica of the Eiffel Tower, making it nearly 500 feet tall, or 150 meters -- more than 3,000 guest rooms, making Las Vegas Sands the best bet on a growing mass market in Macau when it does turn back around.

Outside of Macau, Las Vegas Sands is the only company with real diversification in Asia. Singapore proved once again to be a growth driver for Las Vegas Sands in the most recent quarter, which helped to continue the company's streak of rising year-over-year income. The only other gambling company in Singapore (and the only one that will be there for a long time, because of the government's two-casino restriction) is Malaysian company Genting.

Furthermore, if gamblingis eventually legalizedn Japan (as was discussed in the most recent Japanese congressional meeting, and will probably be discussed more there this summer), Las Vegas Sands has the best chance there. Japanese Prime Minister Shinzo Abe has given his full support for bringing the same sortof integrated resort model that Sands has set up in Singapore to Japan.

Not only is Las Vegas Sands the best bet for having more diversified operations and most consistent income growth, but it's also the cheapest of all of these options, at a P/E of just 17. While there are certainly still a lot of risks for any gambling-industry bet in 2015, Sands still looks by far to be the best bet now.

The article The Best Casinos for 2015: Why Las Vegas Bets Aren't Winners originally appeared on Fool.com.

Bradley Seth McNew owns shares of Las Vegas Sands. The Motley Fool is short Caesars Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.