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Sunday, May 28, 2017

INVESTOR RESEARCH: MGM Resorts International (NYSE: MGM).


Things could be worse for MGM right now. Vegas is getting an NFL team, and the economic environment in the U.S. has people returning to casinos. MGM has the most to gain from this as it has more exposure in Vegas than any of its rivals, and the company has casinos in several locations in the northeast as well including Washington D.C.-based MGM National Harbor which opened in December 2016, and the newly acquired Borgata in Atlantic City, New Jersey.
Beyond the U.S., MGM also boasts a significant footprint in Macau. Macau is the only place in China where it’s legal to gamble—and is the world’s largest gambling hotspot—and MGM plans to open a new location there on the Cotai Strip later this year.
But what got me excited about MGM was a technical pattern on its chart. Let’s take a look.

Source: TradingView.
What we’re looking at here is called a cup and handle pattern.
A cup and handle is easy to recognize as it looks like what it’s name suggests, a cup that is shaped like a U—and not a V—and a handle that has a downward drift. You can see both marked in the chart above.
The cup and handle pattern is a bullish continuation pattern that’s used to identify buying opportunities. It was identified by William J. O’Neil creator of the CAN SLIM investing system, and discussed in his book How To Make Money In Stocks.
Generally, cups that are longer and more U-shaped provide a stronger signal, and an ideal cup shouldn’t be too deep. The handle should form at the top of the cup pattern as it does on MGM.
To trade a cup and handle pattern, wait for the price to close above the resistance, or upper trend line, of the pattern. For MGM, we’re just now seeing a breakout above this level which you can see clearly from the zoomed-in chart below.

Source: TradingView.
When discussing the cup and handle pattern in his book, O’Neil didn’t give a formula for measuring a price target. However, Investopedia recommends measuring the distance between the bottom of the cup and the breakout level, and extending that distance upward from the breakout. In MGM’s case, that gives us a price target of around $45, or 44% above where the price is last Friday, May 26.
Fundamentally-speaking, MGM doesn’t look too expensive with a price to book of 2.85 and a price to earnings of 14.63. Do your own due diligence to understand if this is a stock you’d like to add to your portfolio. If it is, it’s at a great entry point now.
I wish you all an enjoyable Memorial Day. 


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