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UPDATE: Trade Ideas Discussed On The Webinar

Macy's (M) - Members were shown this great risk-reward opportunity over a the next 18-month period. This is longer than our general time span of 2 weeks to 7 months. With stock $12.50, the risk-reward targets were "$6-7  to $20+ over 18 months."

Affirm (AFRM) - This trade reached 100% after 2 days and then trailing stops were triggered for a positive outcome. This is a perfect example of why the comment that "most options expire worthless," has very little meaning to the potential P/L of any specific option.

Overstock (OSTK) - The Company changed its name to Beyond (BYON). The idea is moving according to plan. The November Calls have expired and we have sold the January $22.50 Calls at ~$0.80. Our net cost for the March 15th $17.50 Calls is now $1.20 (capped gain at ~$3.80, or ~320% until January 19th). This trade is up more than 100%.

MGM Resorts Intl (MGM) - MGM offers tremendous risk-reward. We have played a short-term play in December which reached over 100% return. In addition, this trade is our "longer term" play. See Full Idea Below.

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Winning Picks Premium
Example Trade Idea #690

November 9, 2023

Trade Idea: MGM $38.65 (MGM Resorts Intl)

Buy MGM June 21^st $42 Calls $3.75

MGM announced earnings after the bell. The stock jumped to $40 before coming off a bit. Management's conference call went fantastic and I am surprised the stock is not up more. Our existing Calls should be a 100% winner in the morning. I want to stay in the name with a longer duration option as the stock seems to be mispriced.

MGM Earnings Announcement

Here are the highlights from the call:

1. Cyber attack 

This incident is behind them. While MGM lost about $100mm in revenues, the market dinged them for over $2Bn in market cap. This seems like a bit of an overreaction.

2. Bounce Back

The CEO stated that July-August (pre-cyber) combined revenues was up 1% over a very good last year comp. During the cyber attack, September occupancy rates dropped to 88%. However, October occupancy rates (after cyber attack) recovered sharply back up to 95% in Vegas. This is a good sign that the Cyber issue is behind them.

3. Hospitality Strike

Caesars made an agreement on Wednesday afternoon. The CEO said he thought they would have a deal signed ‘today.” MGM likely signs by tomorrow to end the strike. This has been an overhang on the stock because Vegas’ first Formula 1 weekend is coming up this weekend and the expectations are high.

4. Buybacks

They have bought back over 30% of their stock in the last few years. They re-upped their buyback to $2Bn. With MGM’s market cap at ~$14Bn, it’s about 14% of the company at these prices!

Here are the CFO's comments on buybacks:

We'll continue to buy back our shares as evidenced by the new $2 billion share repurchase program authorized by our Board. In addition to returning share -- or cash to our shareholders, these repurchases turbocharge our free cash flow per share growth. And there is more free cash flow growth on the horizon as we're making significant progress with BetMGM, and we have those two exciting growth projects in the pipeline.

Then listen to the CEO:

We have zero net debt right now. We've been aggressive repurchasers of shares. I will say that at these levels of trading in our shares and the value that we think is in there, we would certainly consider taking on some additional financial leverage in order to enable further share repurchases.

5. BetMGM – I’ve described this as the secret sauce to the MGM puzzle. BetMGM is the online gaming effort where they have a 50% stake. This has been a losing business for awhile and now it's turned positive. I’ve always argued that they would do this business for free. It is a key part of their massive marketing flywheel that targets online players and gets them onto the live MGM properties. Imagine getting millions of potential customers for free each year through BetMGM. Even better, make money while doing that!

6. Upcoming Events

The calendar is stacked with major events over the next several years that will bring thousands of new visitors to Las Vegas. For example: Formula 1 next week, Marriott deal starts in 1Q, the Super Bowl in February, March Madness, Mandalay Bay Convention Center Re-opening late-2024, Baseball team 2025, Potential NY gaming in next 18 months, Japan buildout (longer term).

7. Margins

Margins did well again, prompting an analyst to ask the question:

It looks to us like the margin performance was very good… when we just look at it versus what happened last quarter. And I was kind of wondering, does that directionally fit with what you're seeing?

The CEO did agree that margins were strong and should stay that way.

What I find interesting is that this idea of using BetMGM as an advertising/marketing engine is not so clear and management hasn’t stated it directly. I just pieced it together about 18 months ago when the CEO was so excited because they had just figured the math out with some testing they did, and he gave away too much information on the earnings call. 

The combination of BetMGM, MGM Rewards Card, and AI leading customers to their properties is a powerful combination that will continue to reduce advertising as a % of revenues, thereby increasing margins.

8. Macau 

China is doing very well and will only get better as China continues to slowly creep out of Covid. MGM numbers are already better than 3Q 2019, prior to the pandemic.

9. Marriott Deal

I think this Marriott deal is going to be a big winner for MGM. And it starts January 1^st. MGM gets access to Marriott’s customers to fill up holes in their vacancies across all their properties. Again, just a smarter way to do marketing. Listen to the CEO:

If I think about the future, I think about development in Japan in the long haul, hopefully, New York in the midterm, and next year, I think about the ability to unleash 180 million Bonvoy members (Marriott’s rewards card) and Marriott, I get very excited.

The Trade

The stock was caught in a wind tunnel over the last 3 months. Pressure on discretionary spending stocks was the first blow after the last earnings and then this cyber attack knocked it down right into the end of the 3^rd quarter.

That said, there is so much leverage built into this stock.

Remember, Barry Diller’s IAC owns 16.5% and the Top 5 holders have 30% (we’ll see how that changed next week when the 13Fs come out). That’s almost 50% of the company!

If MGM just continues producing these solid numbers and takes more shares off the market, then the stock price will have no other way to go than straight up.

Now, imagine they grow the business?!   

Consider this:

• The Marriott deal could add tens of thousands of client visits per year.
• The Mandalay Bay Convention Center (owned by MGM) could draw in 100,000 more visitors to Las Vegas per year.
• The A's Baseball team could add another 400,000 Las Vegas visitors per year.

At some point, the stock rips higher. It’s simple math.

But timing is everything.

And there are clear risks like a deep recession, pandemic-like event, and a terrorist attack in Las Vegas that would scare off visitors. 

Nonetheless, I like the MGM June 21^st $42 Calls for $3.75 with the stock around $39.60. The Target Stock Price is $55.

Futures are down over night. If the stock is at $38.65, the price would be $3.30 (or lower) as the market deflates the option after earnings. I would wait a little for the market to digest earnings. There's no rush to be in there on the open because this is a longer term trade.

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