Goldman Sachs Adds Gaming Giants to High Sharpe Ratio Group Boosting Growth Prospects

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Wall Street heavyweight Goldman Sachs, globally acclaimed for its financial acumen, has adjusted its high Sharpe Ratio group. This critical basket comprises S&P 500 entities which have demonstrated resilient risk-adjusted return prospects. Intriguingly, this reshuffling has placed three gaming equities into its fold.

Taking center stage in this selected trifecta from the world of gaming are Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NASDAQ: WYNN). Wall Street experts and market investors keenly use the Sharpe ratio as a critical gauge to assess a stock’s performance probabilities, specifically, it’s potential growth relative to inherent stock market volatility.

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Goldman Sachs, leading the way as a trailblazing financial entity, has modified this formula for predicting growth. The investment bank’s innovative spin involves dividing Wall Street’s agreed 12-month price trajectory for a particular stock by the six-month implied volatility of that respective stock.

While recent fluctuations have seen Goldman’s carefully tailored basket of stocks trail behind the more expansive market, the selected gaming stocks have echoed this dilemma. However, this is a deviation from the norm.

Chief U.S. equity strategist at Goldman, David Kostin, explains, “The recent underperformance compared to the total S&P 500 contradicts historical data. The strategy has consistently outperformed the index since 1999, both on an overall and risk-adjusted return basis. Our basket has a commendable 63% semi-annual hit rate of outstripping the S&P 500, with an excess return average of 221 basis points (and an annualized 442 basis points).”

The leading three—MGM, Sands, and Wynn—are not only notable members of the Goldman Sharpe ratio list but are representative of just five entities that fall under the consumer discretionary stocks category. They are also the sole representatives from the gaming industry.

Goldman Sachs’ high Sharpe ratio basket is an amalgamation of both growth and value stocks. In this instance, the value designation is increasingly relevant to casino equities due to fluctuating fiscal terrain.

Despite significant growth from comparative stocks, LVS, MGM, and Wynn have experienced declining prospects in the consumer cyclical sector. With an average loss of around 6% thus far, all three have had a challenging year with Wynn managing to lose the least at 3.08%.

However, there is a conjecture that investors have overlooked some potential positives. Wynn, for example, has a promising pipeline of new projects, with the Wynn Al Marjan Island in the United Arab Emirates looking particularly promising. Analysts argue that MGM’s 6.09% drop is not justifiable given its continued success on the Las Vegas Strip and strong commitment to repurchasing its own stocks.

While 2024 started on a low note for these casino equities, many sell-side analysts remain optimistic, with all three trading at below consensus 12-month price targets. If these predictions hold, Sands, the largest casino operator globally, must see stock prices climb by 40.12% to meet the consensus price forecast of $62.17. Meanwhile, MGM stocks are predicted to rise by 34.41% to reach an average price of $56.40. Similarly, analysts anticipate Wynn Resorts stocks could surge to $125.53 in the next year—an uptick of 42.16%.

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Melinda Cochrane is a poet, teacher and fiction author. She is also the editor and publisher of The Inspired Heart, a collection of international writers. Melinda also runs a publishing company, Melinda Cochrane International books for aspiring writers, based out Montreal, Quebec. Her publication credits include: The art of poetic inquiry, (Backalong Books), a novella, Desperate Freedom, (Brian Wrixon Books Canada), and 2 collections of poetry; The Man Who Stole Father’s Boat, (Backalong Books), and She’s an Island Poet, Desperate Freedom was on the bestseller's list for one week, and The Man Who Stole Father’s Boat is one of hope and encouragement for all those living in the social welfare system. She’s been published in online magazines such as, (regular writer for) ‘Life as a Human’, and Shannon Grissom’s magazine.