ALEX MOTOLA
PORTFOLIO MANAGER
THORNBURG CORE GROWTH FUND

STOCK: Las Vegas Sands Corporation (NYSE: LVS)
PRICE: $47.73 (as of 4 p.m. yesterday)
52-WEEK RANGE: $29.08 – $51.40
MARKET CAPITALIZATION: $16.9 billion

Alex Motola is a managing director with Thornburg Investment Management and is the portfolio manager of the Thornburg Core Growth Fund. Las Vegas Sands is a hotel and gaming company based in Nevada with operations in Las Vegas and Macau, China. Mr. Motola explained to David Dalley of The New York Sun why he believes it is a great investment.

Briefly, what does LVS do?

Well, there are two parts to the business. There’s the business in Las Vegas – basically the Venetian Casino Resort and an adjacent property called the Palazzo [under construction]. The key is that they share the Venetian’s convention center, and that’s the cornerstone of the LVS business in Las Vegas because it draws in huge business to the other areas. They’ve already proven themselves to be the pre-eminent convention organizers in Las Vegas. The second part of what they do is the overseas stuff, and that’s what makes this a really exciting play.

What’s happening overseas?

They’ve moved into Macau [near Hong Kong] where they’re developing a hotel/casino complex called Sands Macau [which also includes a convention center]. Gambling in China is illegal but it isn’t in Macau. Now, if you drew a circle around Las Vegas in terms of where visitors come from, and you placed that same circle over Macau, you’d have yourself a bigger market by several multiples than what Las Vegas currently enjoys. That’s a pretty exciting prospect.

At the same time there’s another development going on in Macau called the Cotai Strip, which will encompass about eight or nine properties including the Venetian Macau. That will be LVS’s second development in the region. LVS will have involvement in a few of the other properties on the strip, too.

As in Las Vegas, the casino and hotel business gets a huge boost from the convention business. We’ve been very encouraged by the information on the people already signed up for conventions there. They’re expressing strong interest even before the development is built.

In terms of numbers, we expect that in a few years LVS will be generating about $2 billion in cash flow on a $20 billion company. That’s compared to $400 million in 2004. They now run slightly more than one property in Vegas. By 2008 they’ll have two businesses in Las Vegas, two in Macau, and they’ll be operating another three or four.

Wouldn’t all of this future potential already be priced into the stock?

Well, the stock went public sometime last year. IPO stocks tend to get forgotten about. People also lost interest in the megaresorts and gambling powerhouses. They’re becoming more interested now. As time passes, people are seeing that LVS is actually meeting its construction forecasts. We liked this stock nine months ago. It’s a situation where there’s a lot of development and execution risk. We have nine months more information now, and it has all been very encouraging.

There’s an interesting anomaly on Wall Street, where it tends to model only things that have already happened. When we look down the road and see the affect on cash flow from future casinos, we have no problem assigning a very realistic valuation to future assets. Wall Street tends to be a little too conservative in these situations. We don’t suffer from the same handicap, and that can be a real advantage.

What are the risks?

The biggest risk for this story is simply the process of development [in Macau]. It’s in a highly politicized environment, and things can sometimes take you by surprise. Political and social sentiments toward gambling over there can change. Balance that with the fact that they need third parties [e.g. the Chinese government] to spend a lot of money to build their infrastructure. It is a real risk, and you have to be comfortable with that.