1 Stock to Buy in May: Las Vegas Sands

In this series, we're presenting six ideas for stocks to buy in May -- stocks our writers believe can serve as the foundation for a long-term-focused portfolio.

Round and round she goes, where she stops, nobody knows! Who doesn't like spinning the roulette wheel once in a while, or putting a few bucks on a poker game or a hand of blackjack? The world is full of gamblers, and gambling as a business is big and getting bigger.

Since the awarding of gaming licenses to Indian tribes in the 1980s, new markets have popped open here and abroad. Meanwhile, the recovering domestic economy has begun lifting the results of casino operators in traditional markets such as Las Vegas from their recession plunge. Even the sharpest players know that the odds are always stacked heavily in favor of the house, and one of the best houses is Las Vegas Sands (NYS: LVS) .

The business
Anyone who's been to Vegas has at least stared at the company's property, if not gambled away part of their savings there. The company operates two of the Vegas Strip's iconic complexes, the faux-Italian Venetian and the neighboring Palazzo.

Both are monuments to the power of gambling -- the Venetian boasts around 120,000 square feet of gaming space and more than 4,000 suites for those gamers to stay in. The Palazzo boasts 50 floors of hotel with more than 3,000 suites and nearly as much gaming real estate as its brother. It's also connected to the Sands Expo Center, one of the country's largest convention facilities, which of course helps funnel large numbers of guests to the games conveniently located a short walk away.

The company's other domestic asset is the Sands Bethlehem, an integrated (gaming, hotel, retail, dining) facility in the eponymous Pennsylvania city, once home to a big steel factory. Gaming space is even more immense here, at 152,000 square feet, although many players have to commute to reach it since the hotel "only" has 300 rooms.

Those buildings are impressive, but America's not where Sands Las Vegas is making the serious money. The Chinese "special administrative region" of Macao is the largest gaming market in the world, producing several times the collective revenue of Vegas and dwarfing every other American casino enclave.

Las Vegas Sands' great advantage as a company is that it's got a few solid hooks in that market. Through its majority-owned subsidiary Sands China Ltd., the firm operates the Venetian Macau, which is virtually a gambling city in terms of size. It has more than 500,000 square feet of gaming room and around 2,900 hotel suites, to say nothing of the 300 stores in its 1 million square feet of retail space.

If gamblers get tired of spending money in the Venetian, they can pop over to one of the company's three other properties in the region -- the Four Seasons, the Sands, and the just-opened Sands Cotai Central, which has an almost astounding 13.7 million square feet of total space and 5,800 suites.

Elsewhere in Asia, Las Vegas Sands also operates Marina Bay Sands in the small but rich city-state of Singapore. The country isn't very big, but the Marina Bay is still a sizable place, more or less matching the dimensions of its Vegas Strip properties. For good measure, Marina Bay (which is responsible for around 28% of company revenue) even has an art and science museum to complement its usual hotel, retail, dining, and entertainment amenities.

Why it's a buy now
China's economy might be slowing down of late, but it seems that someone forgot to tell the nation's gamblers. That $33.5 billion in gambling revenue Macau vacuumed in last year was a more than 40% increase over 2010's figure.

Of course, not all of Macau's visitors are dropping their last pataca on baccarat or the slot machines. Since Las Vegas Sands' assets in the enclave are integrated facilities, the firm makes money when these visitors buy dinner, go to a show, or contribute a few drops to one of the many other revenue streams flowing through its properties. And the customers just keep coming; in March, visitor arrivals in package tours leaped by nearly 42% year over year.

So it's a great time to open a big new facility and add to the revenue and bottom line figures that have already been rising nicely. All told, the company took in a record $9.4 billion in revenue in 2011, for an increase of 37%. Net income over that period, meanwhile, zoomed by 160% to $1.56 billion.

The company isn't content with only settling in those markets. Determined CEO Sheldon Adelson is planning to open EuroVegas, a huge project to be located in Spain that would aim to ingest Europe's scattered gaming customer base. The complex would occupy an area roughly half the size of the Vegas Strip and feature 12 resorts, inside of which would be six casinos, nine theaters, and as many as three golf courses.

At the moment, Adelson is estimating that the project would cost something in the neighborhood of $35 billion. That's expensive, sure, but it would buy a destination that's unique on the continent. As such, it would be a good bet to attract a significant chunk of Europe's gaming population.

Plus, the timing is coming at the bottom of a market -- Spain currently suffers from a worsening economy and deepening unemployment, and thus could really use the boost that a project of this scope would bring. This could conceivably provide leverage for Adelson and company to bring some of the costs down.

Mix it up
Few gambling stocks have as good an asset base/financials mix as Las Vegas Sands. MGM Resorts (NYS: MGM) , which is still recovering after nearly going bankrupt not long ago, has nearly all of its casino properties in the U.S. with only a limited presence in Macau. Operationally, it's posted net losses in three of its last four quarters in spite of an improving macroeconomic climate.

Wynn Resorts (NAS: WYNN) has one casino/hotel combination each in Las Vegas and Macau. The Chinese iteration of the casino is much smaller than the nearby Venetian. The company is expecting the country's government to soon approve its application for a bigger casino on the Cotai Strip, but if this happens, the facility probably won't open until the middle of the decade, at best.

Meanwhile, Caesars Entertainment (NAS: CZR) operates a sprawling collection of generally smaller facilities operating under several brand names (Harrah's, Bally's, Horseshoe, etc.). They're usually located in less-high-profile locales like Atlantic City or Reno, and the company has only a few complexes outside of the United States. None is in a hot Asian market like Macau. A recent IPO hasn't pushed the company into the black; it's loss-making and expected to continue being so over the next two fiscal years.

Casinos, particularly those in Las Vegas or Macau, are huge places requiring a lot of management, upkeep, and staff to keep running. Operating costs, therefore, are high. Additionally, Las Vegas Sands is a tireless builder and constructing those big facilities requires so much money that even the cash pumped in by the firm's casinos isn't enough. At the end of 2011, long-term debt stood at just over $9.5 billion, which is more than double the $3.9 billion the company had in cash.

Although Macau visitor numbers are continuing to grow robustly, they can't do so forever, particularly if GDP advancement is slowing down and the populace has to make do with less fun money. As for Vegas, America's economic recovery is still tentative, and there's always the chance growth will decelerate or stagnate. And when the country's economy sneezes, its top gambling city tends to catch a cold. That puts a lot of pressure on Singapore operations to keep things humming.

In sum
Las Vegas Sands knows its business, and knows it well. It also seems to have a knack for establishing a strong foothold in lucrative markets and staying there while the money rolls in. The big, just-opened facility in Macau will add to the company's already strong revenue and net growth, while EuroVegas will be a unique project sure to attract big crowds. This stock's a winner, much like a lucky blackjack gambler or poker shark in one of the firm's many casinos.

Fool contributorEric Volkmanowns no stocks mentioned in the story above. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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