Market Overview
Led by mega-cap tech stocks, the indexes tacked on modest gains last week. The S&P 500 rose 1%, the Dow added 0.84%, and the Nasdaq gained 0.7%.
This week has the potential to be volatile as earnings season continues and the Federal Reserve interest rate decision on Wednesday afternoon could shake up the market.
The Stock – Las Vegas Sands (LVS)
Why the Strength
It won’t be a straight line, but the reopening of China’s economy is on track, and there’s no question one of the biggest beneficiaries is the travel and hospitality sectors as citizens surely have plenty of cabin fever. That’s the big reason behind the strength in Las Vegas Sands, which, after a few hiccups in February and March, has come back to new highs.
The Q1 report was fantastic, with a huge recovery in its Macau operations and continued superb cash flow from Singapore. In Macau, EBITDA for its operations lifted to $398 million, up from a small loss a year ago, yet even that is still just under half of the Q1 2019 (pre-pandemic) level—indeed, total visitation to Macau in January and February was just 39% of the pre-pandemic level, while visitation from outside of the nearest province was only 27% of what was seen in 2019. Translation: While cash flow has improved a lot, chances are Sands’ Macau hotels and casinos have many quarters of boom times ahead, with new EBITDA highs likely down the road (especially true given that the firm has cut plenty of fat).
As for Singapore, EBITDA there was $394 million (up from $121 million a year ago), down just 7% from the 2019 level even though passenger volume to the nearest airport (a key visitation metric) was still down more than 20% from before the pandemic. Throw in a few upgrades and improvements coming soon (some new suites in Singapore were finished late last year, with more amenities coming throughout 2023) and there’s every reason to believe demand will continue to surge.
The China reopening story isn’t brand new at this point, but we think shares have room to run as investor perception improves.
Technical Analysis
LVS changed character last October, with a shakeout leading to a quick snapback—and that snapback morphed into a persistent uptrend through January. Then came the rest period, which started normally but shook out in March with the market (and bank panic). But that dip was quickly bought, and LVS moved to higher highs after earnings. Stop — 55.5
The Covered Call Trade
Buy Las Vegas Sands (LVS) Stock at 64.25, Sell to Open June 65 Strike Calls (exp. 6/16) for $2.50, or a Net Price of 61.75 or less
Static Return: $250 per covered call (4.04%)
Breakeven: 61.75
Covered Call Return (if assigned): $325 per covered call (5.26%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 61.75 or less. (In this case 64.25 minus 2.50 = 61.75. Or another example is you could pay 64 for the stock and sell the call for 2.25, which also equals 61.75)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.
The next Cabot Profit Booster issue will be published on May 9, 2023.
