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Investment Opportunities

It’s Not Gambling if You Know You’re Going to Win

This is a follow-up to several segments I did in the past year about Macau, the gambling center for Asia and especially for the Chinese.

The Chinese, by the way, love gambling so much the Chinese government is looking for ways to slow down the amount their citizens are leaving in Macau. That’s a good sign.

Recently released earnings and revenue numbers for the hotels operating in Macau were through the roof, and Las Vegas Sands Corp. (NYSE: LVS), one of the casino hotel operators I’ve talked about in the previous segments, has had its price target raised by almost all the analysts who follow it. And it’s all because of its Macau operations.

JP Morgan raised its LVS target to $80 from its current $72 to $73 range based solely on increased earnings projections – 8.1% for this year and 8.8% next – just from the Asian operation.

This gives the stock a forward P/E of about 19, but JPM said, based on the growth potential, this is not expensive.

Stifel, Nomura and Susquehanna analysts all have had similar increases in earnings and growth estimates with target prices as high as $82 in 2014.

Gambling is just another way to ride the huge expansion of the middle class in China, and they are leaving a lot of their money in Macau.

Take a look at LVS.

A Small Senior Housing Play With Big Upside

As the boomers enter their senior years the demand for just about anything that caters to the elderly will explode. And housing for the elderly will be one of the absolute essentials going forward.

Capital Senior Living Corp. (NYSE: CSU) runs over 100 senior housing and assisted living facilities in almost half of the U.S., and most of its operations are privately paid, so it has little or no exposure to Medicare cuts.

And its average monthly cost is around $2,500 for independent living and $3,700 for assisted living facilities. That’s well below its competitors of over $4,000 per month.

Most of CSU’s future growth will come from the fact that it is a small operator that is able to acquire new properties that are too small to attract the attention of the cash-rich big REITs.

Most property sales in this part of the industry result in bidding wars by the big-name REITs, but CSU is able to avoid this trap by buying small operations the REITs are not interested in, at very attractive prices.

But this size advantage won’t last forever. It is expected to grow revenues by 15% this year and 10% next. Its under-the-radar bargain buying will not be there indefinitely.

The high P/E of 80 will scare away investors unfamiliar with CSU, but it is not an accurate measure of this type of operation. The cash from facility operations, CFFO, which is the real measure of this type of a real estate operation, is at a very attractive 11 times.

It pays no dividend. CSU is using all its cash to fund growth. So what this one lacks in income it makes up for in big growth potential. And the lack of a dividend in this market will keep its price out of the stratosphere and under most radars but, as I said, not forever.

It has as much as a 35% potential upside in the next year.

Take a look at senior housing.

The “Slap in the Face” Award: Kiss it Goodbye

And finally, maybe the most entertaining “Slap in the Face” award in a long time.

This comes from a Henry Hebeler article in MoneyWatch, and it’s about lending money to relatives. All of us, I’m sure, have been in this barrel at least once.

According to Hebeler, the first rule when relatives ask for money is just give it to them. Never expect to be paid back because, in all likelihood, you won’t be. Even with a written contract, forget about it.

He talked about counseling your parents, in-laws or siblings about budgeting or planning for a rainy day. Right! I can see my sisters sitting there being counseled by me.

And borrowing from a relative is never about a minor issue. They are always big, expensive problems. Believe me, I know from personal experience. They don’t call for 50 or 100 bucks.

The best thing to do is just give it to them because not only do you have almost no chance of recovering it, a loan over $1,000 can become a tax issue, too.

The new Golden Rule: Forget about it.


About

Somewhat of a renaissance man, Steve worked as a professional broker and has been an active trader of bonds for more than two decades, specializing in ultra-short-maturity corporate bonds. But before entering the investment industry, Steve was a naval aviator, flying fixed-and rotary-winged aircrafts, and also served as a surface warfare officer. Steve’s regular video series featured on Wealthy Retirement called “Slap in the Face” Award is some the most amusing investment content we republish.

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