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Bankfluence
January 10, 2024

On January 3, 2024, we disseminated our most compelling portfolio idea to date in an article titled "Beyond Conventional Wisdom: Mastering the Game With Defense As Offense.” In this comprehensive piece, we expounded upon the strategic positioning of an overweight allocation to Defense and Aerospace and Healthcare sectors, deeming it the most prudent approach for Q1 into H1 '24. This recommendation stems from a market experiencing early-year seasonal weakness juxtaposed with stretched valuations in the technology sector. While some dissenting views have emerged, the core inquiry remains: In managing financial assets, is it advisable to consistently allocate funds into overextended valuations? Or would a more judicious approach involve a portfolio manager recognizing the opportune moment to overweight sectors historically resilient during phases of market digestion?

As evidenced by the sector performance at the conclusion of the first week, our "Defense As Offense" (DasO) strategy is not only materializing but also outperforming the broader market. Our commitment to this thesis remains unwavering, and the portfolio will persistently align with this strategic positioning. The unfolding weeks and months are anticipated to reveal more favorable long-term entry points, underscoring our belief that while technology and innovation retain significance, the market will present superior buying opportunities as the year progresses.

While acknowledging that one week does not define a comprehensive trend, the nascent emergence of DasO is indeed encouraging, substantiated by the noteworthy sector performance at the end of the inaugural week. This reinforces our conviction in the viability of these ideas, as they not only withstand market scrutiny but also surpass the broader market performance thus far. Our dedication to this strategic thesis remains resolute, as we navigate the portfolio with an eye on enduring success. In contemplating your investment horizon, the choice beckons: a good time or a sustained presence for the long term?

It is incumbent upon us to provide a comprehensive update on another of our longer-term portfolio theses. On December 26, 2023, we published an article delving into the anticipated 'catalyst storm' poised to impact Las Vegas and the Casino stocks. Titled "Color Up: Las Vegas’ Catalyst Storm," the article delineated four major events expected to propel revenue, margins, net profit, and share prices within this market segment. While the performance of share prices currently presents a mixed bag, contextualizing it within the broader market reveals some resilient standing. Although we did not explicitly designate this as a longer-term idea, a perusal of the article, coupled with an understanding of the catalyst dates, naturally implies that this was not a one off trade.

Specifically highlighting stocks such as $MGM, $CZR, $WYNN, $LVS, $BALY, and $BJK within the article, let us now examine the performance of each since the publication.

  1. MGM Resorts International ($MGM)

    1. December 26 closing price: $44.66

    2. January 5 closing price: $44.83

    3. Performance: 0.38%

  2. Caesars Entertainment Inc ($CZR)

    1. December 26 closing price: $47.55

    2. January 5 closing price: $44.91

    3. Performance: (5.55%)

  3. WYNN Resorts Ltd ($WYNN)

    1. December 26 closing price: $91.00

    2. January 5 closing price: $95.65

    3. Performance: 5.11%

  4. Las Vegas Sands Corp ($LVS)

    1. December 26 closing price: $49.04

    2. January 5 closing price: $50.81

    3. Performance: 3.61%

  5. Bally's Corporation ($BALY)

    1. December 26 closing price: $14.69

    2. January 5 closing price: $11.92

    3. Performance: (18.86%)

  6. VanEck Gaming ETF ($BJK)

    1. December 26 closing price: $42.33

    2. January 5 closing price: $41.45

    3. Performance: (2.08%)

The visual depiction of performance is striking, particularly in delineating the performance gap between $BALY (the poorest performer) and $WYNN (the top performer). One might have anticipated a more synchronized trading pattern between them; however, this visual disparity could serve as a valuable tool in discerning the eventual victors among the group.

Color Up Basket - Earnings Dates:

  • MGM Resorts International - February 7

  • Caesars Entertainment Inc - February 20

  • Wynn Resorts Ltd - February 1

  • Las Vegas Sands Corp - Jan 24

  • Bally’s Corporation - February 22

The Nevada Gaming Revenue Report for November 2023 was released in late December and reveals notable positive trends. According to the report, the ‘win revenue’ was $1.374B for November 2023, reflecting an increase of approximately 2.56% compared to November 2022. Trends have been steadily climbing since July 2023 with growth approximately 4.74% in this period. In an article published by Antoni Majewski, he reports “The state witnessed a significant 9.49% increase in percentage fee collections in December 2023, amounting to $85,367,333, based on November’s taxable revenues.” He continues on to note, “These gains in gaming wins and fee collections are vital to Nevada’s revenue, with a year-to-date percentage fee collection increase of 3.17%.” Majewski concludes the article by expressing, “This report from the Nevada Gaming Control Board is a clear indicator of the health and vitality of the state’s gaming industry. The increase in gaming wins and tax collections not only speaks to the enduring appeal of Nevada as a gaming hub but also to the effective management and regulation of the sector.”

The data consistently reinforces our thesis that the affluent Formula 1 enthusiasts have laid the groundwork for a succession of positive catalysts in the upcoming first quarter of 2024. Notably, three out of the four major events—Formula 1, National Rodeo, and New Year's Eve—have already transpired, with the Super Bowl scheduled for February 11, 2024. Factoring in the publicly available gaming revenue data, along with favorable CEO remarks regarding hotel bookings and attendance figures, we assert that investors may be undervaluing the potential impact of these commentaries on earnings, which will be commencing in the coming weeks.

We maintain a highly optimistic stance on this concept and invite skeptics to reevaluate, as it could potentially yield some of the most substantial earnings surprises within the forthcoming Q4 2023 reports.