Sands, Wynn Among Goldman’s Top Sharpe Ratio Stocks

Posted on: June 25, 2024, 04:47h. 

Last updated on: June 26, 2024, 10:00h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Goldman Sachs rebalanced its “high Sharpe Ratio” basket, a group of S&P 500 components with strong risk-adjusted return prospects, and three gaming equities made the cut.

Goldman Sachs
Goldman Sachs’ headquarters in New York. Three casino stocks are on the bank’s high Sharpe ratio list. (Image: Fox Business)

That trio is comprised of Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NASDAQ: WYNN). Investors use the Sharpe ratio to gauge a stock’s upside potential relative to its volatility. Goldman’s spin on the metric is Wall Street’s consensus 12-month price target on a stock divided by its six-month implied volatility. Recently, the Goldman basket has lagged the broader market and that’s true of the aforementioned gaming names, but that’s not typical over the long term.

Recent underperformance relative to the aggregate S&P 500 is at odds with history as the strategy has a long track record of outperforming the index on both an absolute and risk-adjusted return basis,” wrote David Kostin, Goldman’s chief US equity strategist. “Since 1999, the basket has posted a 63% semi-annual hit rate of outperformance vs. the S&P 500 with an average excess return of 221 basis points (and 442 basis points annualized).”

MGM, Sands, and Wynn are three of the five consumer discretionary stocks on the Goldman Sharpe ratio list and the only ones from the gaming industry.

Maybe Some Value in Casino Sharpe Ratio Stocks

Goldman’s high Sharpe ratio basket includes both growth and value stocks, with the latter designation being most applicable to casino equities.

Although growth stocks are easily outpacing their value counterparts this year, LVS, MGM, and Wynn are among the worst offenders in the consumer cyclical sector. All three are lower year to date with an average loss of about 6%, with the “best” performer of the group being Wynn. That stock is down 3.08% since the start of 2024.

With each of the casino stocks, a case can be made that investors are overlooking positive catalysts. For example with Wynn, market participants may not be yet fully appreciating Wynn’s product pipeline, which is largely comprised of Wynn Al Marjan Island in the United Arab Emirates (UAE), a project on which construction recently started.

Regarding MGM, some analysts and investors believe the repudiation of the stock in 2024 — it’s down 6.09% this year — is too harsh given ongoing vibrancy on the Las Vegas Strip and the operator’s devotion to repurchasing large amounts of its shares.

Casino Stocks Trading Well Below Price Targets

Despite the 2024 lethargy displayed by the casino stocks in Goldman’s Sharpe ratio group, the trio is mostly favored by sell-side analysts, and all three currently trade at prices that are well below Wall Street’s consensus 12-month price targets.

In the case of Sands, the largest casino operator by market capitalization, the stock needs to rise 40.12% to hit the consensus price forecast of $62.17. MGM’s implied upside to the average price objective of $56.40 is 34.41%.

As for Wynn Resorts, analysts believe that stock could run to $125.53 over the next 12 months, implying upside of 42.16%.