Macau: Six Times Bigger than Vegas, with Six Times the Opportunity by Tony Sagami, Mauldin Economics
58 years old. Yes, I’m the right age, but I’ve never considered myself to be a yuppie.
I’ve never owned a foreign sports car, I wear a Timex instead of a Rolex, I’d rather drink a Coors Light than a glass of Pinot Noir, I don’t golf, I’ve never been to Paris, I drink Folgers coffee like my father did, I’ve been married only once, and my idea of a good time is watching my boys play baseball or hiking in Glacier National Park.
I will forever be the son of a hardworking, simple vegetable farmer.
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Yuppies, however, have been a powerful consumer bloc and have had a great impact on both the economy and the stock market. Investors who bought stock in companies that catered to yuppies have done well.
As powerful as the yuppie phenomenon has been, though, it is just a mosquito bite compared to the monumental shopping spree currently being undertaken by Chinese yuppies, which I call “Chuppies.”
The Chuppies are the rapidly growing, new middle class being created by the booming Chinese economy. Chuppies are well educated, ambitious, have money burning a hole in their pockets, and are more label-conscious than the worst gold diggers in Los Angeles.
Just like with American yuppies, you can make a lot of money by identifying how they are spending their money and investing in the companies that cater to them.
The clothes Chuppies wear. When it comes to apparel, the Chinese crave designer labels. Sure, Chinese teenagers wear clothes from Gap, V.F. Corp’s Lee Jeans, and Abercrombie & Fitch, but the successful professionals are big buyers of Prada, Richemont, and Ralph Lauren.
The food Chuppies eat. There are not many things more American than the hamburger, but I seldom see long lines at McDonald’s and Burger King stores in China. Why not? Asians much prefer chicken to beef, which is why Yum! Brands’ (YUM’s) KFC stores are almost always jam-packed with customers, and why more than 50% of Yum Brands’ revenues come from outside the US. Lastly, the Chuppies often finish their meals with a sweet donuts from Krispy Kreme or a latte from Starbucks.
The status symbols Chuppies flaunt. Successful Chuppies are very eager to show their success and are very conspicuous consumers, which is why Tiffany, Coach, and Louis Vuitton stores are doing gangbuster business and why I see more Bentley, Rolls Royce, BMW, and Porsche cars in Shanghai than I do in Seattle.
The way Chuppies spend their vacations. One of the most popular things that Chuppies are doing with their money is spending it on travel, especially within China. It wasn’t that long ago, when the communist rule was stricter, that travel wasn’t practical and was often prohibited. But now, thanks to aggressive infrastructure spending on railroads, airports, roads, and bridges, the Chuppies are making up for lost time.
Hotel chains like Homeinns and Intercontinental Hotels Group are almost always close to fully booked; airlines like Cathay Pacific and China Eastern are filled to the rafters; and online travel agent Ctrip.com pulled in US$1.2 billion in sales in the last 12 months.
I have traveled all over Asia and there is one place that is benefiting from the Chuppie spending boom more than anywhere else.
I’m not talking about the Great Wall of China, the Bund in Shanghai, or Nathan Road in Hong Kong, but about the Las Vegas of Asia: Macau.
Macau is the only location in China where gambling is permitted. And boy, do Asians love to gamble. Get this: more money is gambled in Macau than in Las Vegas.
Not just a little more…a LOT more. In fact, 600% more!
If you saw the high stakes being bet in Macau, you’d understand exactly what I’m talking about. The Chuppies—plus gamblers from Japan, Taiwan, South Korea, Singapore, and other countries—flock to Macau to try their luck.
Every time I go to Macau, I am shocked at how drastically the skyline has changed. Dozens of previously empty lots are now filled with steel girders stretching to the sky, filling the bulging demand for residential and office space. Macau real estate is appreciating so rapidly that many of the service workers—dealers, waitresses, cab drivers, maids, and cooks—are moving to a neighboring city called Zhuhai.
Here’s what should matter to you as an investor. All those glamorous casinos in Las Vegas were NOT built with the money from winners. So if Macau is out-gambling Las Vegas, that should tell you volumes about how profitable the casinos there are, and that Macau casino stocks are worth your consideration.
There are four public gaming stocks that are doing business in Macau: Las Vegas Sands, Wynn Resorts, MGM Resorts, and Melco Crown Entertainment.
All four of the above stocks are traded on the NYSE or Nasdaq, so they are as easy to buy as Boeing or Apple.
Bottom line: I’ve traveled all over Asia and no place is as vibrant, growing, and packed with opportunity as Macau is.
Warning: The above list is not a buy list. One of those four is an absolute dog, one is insanely overvalued, and one is okay—but one of them is an absolute steal that I think is an easy double by 2017.
In a future edition, I’ll tell you more about the one gaming stock I think could double.
30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.