Goldman Sachs notable stocks with exceptional Sharpe ratio: Sands and Wynn.
Financial institution Goldman Sachs has readjusted its collection of stocks with a high Sharpe Ratio, a group that features S&P 500 components demonstrating strong risk-adjusted performance potential. This revamped list now contains three gaming companies: Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NASDAQ: WYNN). This ratio, utilized by investors, calculates a stock's growth potential relative to its volatility – Goldman's version uses the Wall Street consensus 12-month price target divided by six-month implied volatility.
Goldman's updated list has shown subpar performance compared to the overall S&P 500, including the listed gaming companies. However, this underperformance tends to be atypical over the long term. According to David Kostin, Goldman's chief U.S. equity strategist, since 1999, this approach has shown a 63% semi-annual hit rate of outperforming the S&P 500, with an average excess return of 221 basis points (442 basis points annualized).
These three casino stocks – MGM, Sands, and Wynn – are among the five consumer discretionary stocks in Goldman's Sharpe ratio list and are the only ones from the gaming industry.
Possible Benefits for Casino Sharpe Ratio Stocks
Goldman's high Sharpe ratio portfolio encompasses both growth and value stocks, with the latter label being more relevant for casino stocks.
While growth stocks are dominating value stocks in 2024, LVS, MGM, and Wynn are among the poorest performers in the consumer cyclical sector, with losses ranging from 3.08% (Wynn) to 6% (on average).
Each casino stock seems to be enduring overlooked positive catalysts. For instance, Wynn's product pipeline, which includes Wynn Al Marjan Island in the United Arab Emirates – a project that recently commenced construction – might not yet be fully appreciated by the market.
MGM's relative undervaluation in 2024 – down 6.09% year-to-date – could be too harsh given the continuing vibrancy on the Las Vegas Strip and MGM's active share repurchase program.
Casino Stocks Trading Below Estimated Prices
Despite the sluggish performance of the casino stocks in Goldman's Sharpe ratio group in 2024, all three are broadly favored by sell-side analysts, and their current prices are well below the established Wall Street consensus 12-month price targets.
In the case of Sands, the largest casino operator in terms of market capitalization, the stock requires a 40.12% increase to reach the forecasted average price of $62.17. Similarly, MGM's implied upside to the average price target of $56.40 stands at 34.41%.
Analysts anticipate a 42.16% increase in Wynn Resorts' stock value, which would translate to a price of $125.53 over the upcoming 12 months.
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