Stock Quotes in this Article: GIGM, LVS, WYNN

WINDERMERE, Fla. (Stockpickr) -- Some major news could be about to break for the casino and gaming sector.

There’s a move in Nevada to legalize online gambling. Assembly Bill 258 calls on Nevada gambling regulators to legalize Internet poker, which would allow a reputable gaming company with two years of established business in another state to open up for business in Nevada. The new law would also apply to existing Nevada casinos.

According to Jeremy Aguero of Applied Analysis, online poker is one of the fastest-growing industries in the world, with 8.6 million users and 2010 revenue surpassing $5 billion. Currently, no U.S. state allows for online gambling. If this bill passes, it could lead to other states following Nevada to join in on the trend to capture the huge tax revenue.

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    Some observers see this as a bad thing for brick-and-mortar casinos, but I think that view is misguided. In the end, a decision to legalize online gambling is going to do nothing but drive growth and profits for the Nevada casinos that join the party.

    For one thing, the major casinos can leverage their brand names by setting up their own online gambling operations. Players might find it more attractive to go online and gamble with the powerhouses of the industry. Also, the best-of-breed casinos will enter a new growth market by going online. This will be sure to increase their revenues and earnings. The major casinos will also benefit from the halo effect since they’ll now be able to market their brick-and-mortar operations to online users.

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    Imagine an online player sitting at a computer gambling and then all of a sudden being served up special hotel and trip deals right into their inbox or via online ads. The smart casinos are going to figure out ways to not just keep their customers gambling online, but also to draw them into the glitz and glamour of Las Vegas. Mark my words; this will be a casino marketer’s dream.

    If you think the Las Vegas-based casino companies are sleeping on this opportunity, than you’re wrong. Before the bill has even been voted on, two major casinos have already formed partnerships this week with online gambling firms.

    On Thursday, Nevada regulators approved a marketing agreement between the world’s largest casino operator, Caesars Entertainment, and 888 Holdings PLC, an Israeli company that offers online poker, sports betting and casino games in Europe. The only publicly traded way to play Caesars is with private equity firm Blackstone Group (BX), which owns a minority stake in the casino.

    The other major casino is featured below, as one of several casino and gaming stocks that could benefit from the passing of the bill in a big way.

    Wynn Resorts


    The other best-of-breed casino player is that just signed a partnership with an online gambling company is Wynn Resorts (WYNN), a developer, owner and operator of destination casino resorts. On Thursday, Wynn announced a partnership with PokerStars, a company that operates online poker games. This puts Wynn in a great position to capitalize if the bill does indeed get passed.

    If you take a look at the chart for Wynn, you’ll see that the stock had been in a very bullish uptrend channel chart pattern for the past few month. However, just recently the stock moved below that channel and broke a key trend line. This can often be a warning sign for a stock, but it’s not the end of the world if the name in question can quickly get back inside of the channel and start to uptrend again.

    Considering the potential for the passing of the bill, I think the probability for WYNN to break back above that trendline is high. If that does happen, then I would be a buyer of the stock. Watch for strong volume to confirm that the stock is back in control of the bulls. That would probably look like any volume north of 2.7 million shares, which is well above three-month average trading volume of 2.1 million shares. I would add to the position heavily if it broke above the nearest overhead resistance at around $132.25 a share. A move above that level would also signal a breakout for WYNN.

    Las Vegas Sands


    Another Vegas casino stock that could be set to soar significantly higher if the Nevada bill passes is Las Vegas Sands (LVS). This company, together with its subsidiaries, develops multi-use integrated resorts worldwide. You’ve probably heard of some of its famous casinos, which include the Venetian Resort Hotel Casino and the Palazzo Resort Hotel Casino.

    As of right now, I don’t have any knowledge of a partnership with LVS and any online gambling company, but I would bet that they’re in talks with many. What we do have this morning is an upgrade from a UBS analyst from neutral to buy . I think the UBS analyst sees what I see: the coming boom for casino stocks.

    If you take a look at the chart for Las Vegas Sands, you’ll see some longs came into the name right at a longer-term support level of $36 a share -- funny how that happens right when major news breaks. I am being cynical, but this is why market players have to be watching the charts to see where previous support or resistance lies. That was a clear buying point, and the risk/reward was good. All you had to do was put a stop right below $36.

    Don’t worry if you missed that opportunity. The stock still has lots of room to run much higher if the bill passes. Another bullish technical pattern just went off for LVS. The stock just broke out above a descending trend line that had acted as resistance for the past month. This is a very bullish signal because it could mean that the trend on LVS is about to change and a move significantly higher is in the cards.

    The trend line breakout is also coming on heavy volume. On Thursday, 35 million shares traded hands vs. the three-month average trading volume of 25 million shares. Look to buy LVS on any pullback. You can add to the position if it continues to uptrend once it trades above the 50-day moving average of $44.57. I would then add more each time it moved above the next overhead resistance level on strong volume. For example, if the 50-day is taken out with volume, then add once $47 is taken out with strong volume.

    GigaMedia


    One more stock that looks poised to benefit if Nevada passes the online gambling law is GigaMedia (GIGM), which provides gaming software and services to the online gaming industry and operates online games in China, Taiwan, Hong Kong and Macau. It develops and licenses online poker and casino gaming software solutions and application services primarily for continental European markets.

    Talk about being in the right sector at the right time. GigaMedia is a very speculative stock, but it’s perfectly positioned to reap major rewards if online gambling is legalized state by state. Just an approval in Nevada could be worth millions to this company. GigaMedia is no slouch with its balance sheet, either. The company has around $89 million in cash and around $15 million in total debt. At around $1.40 a share, the stock actually trades below its total cash per share of $1.59.

    If you look at the chart for GigaMedia, you’ll see that the stock has been stuck in a major downtrend channel for the past six months. During that time, the stock has displayed a bearish chart pattern of lower highs and lower lows. However, that could be about to change. I drew a trend line on the chart above that represents the top of channel. GIGM has just started to break out above that trend line on monster volume.

    On Thursday, volume registered 2.3 million shares, which is well above three-month average trading activity of 463,000 shares. That’s bullish volume, and I love that its coming into the stock as it breaks above a key descending trend line. This stock could now be setting up to trade back toward $1.60 or possibly even $2 a share.

    Keep in mind this is a risky stock, and the company isn’t profitable. However, for a trade, it could definitely be a great play here. Plus, it trades below cash per share, so the stock could be undervalued when you consider how big the online gambling market is.

    To see more online gambling stocks, check out the Online Gambling Stock Plays portfolio on Stockpickr.

    -- Written by Roberto Pedone in Winderemere, Fla.

     

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    At the time of publication, author had no positions in stocks mentioned.

    Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.

     

    Please note that due to factors including low market capitalization and/or insufficient public float, we consider GigaMedia to be a small-cap stock. Small-cap stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and postings such as this one can have an effect on their stock prices.