Wynn Resorts rides winning reputation

Casino and resort operators may not be the first place you look when the stock market is in a funk, but Wynn Resorts (Nasdaq: WYNN) deserves consideration. Its shares have lost more than half of their value over the past year, mainly due to a slowdown in the gambling mecca of Macau, China, where Wynn derives the majority of its revenue.

The company cut its dividend significantly earlier this year, but it still yielded a solid 3 percent recently. The cut was made to help it plow more billions of dollars into further growth. Wynn is currently investing in its largest project to date: the Wynn Palace in Macau, which is to be a 1,700-room, $4.1 billion luxury casino resort. The Wynn Palace will be well positioned to capitalize on the Macau turnaround that’s expected to take place in the coming years.

CEO Steve Wynn has said he would rather keep a strong balance sheet than borrow money to pay a strong dividend. The company has an excellent record of generous distributions to shareholders, and in fact it has paid hefty special dividends on top of its normal payouts in all but one year since 2006. With the company investing billions into ambitious new projects and expected growth of nearly 8 percent per year over the next five years, patient shareholders may be handsomely rewarded.

Ask the Fool

Q: How do I figure out my cost basis and my gain when I sell a stock? – M.B., Dalton, Georgia

A: Let’s say that you buy 100 shares of MacDonald Farms Inc. (ticker: EIEIO) for $50 each, paying a $10 commission. Your cost basis is the purchase price ($5,000) plus the commission, or $5,010. The cost basis per share is $5,010 divided by 100, or $50.10. If you eventually sell the shares for $60 each, or $6,000, subtract the $10 commission on the sale and your proceeds will be $5,990, or $59.90 per share. Your taxable capital gain will be the difference – $980, or $9.80 per share.

Q: What’s a moving average? – S.F., Warsaw, Indiana

A: Imagine that you’re looking at a table that shows the annual return of a mutual fund for 20 years. The numbers will probably fluctuate quite a bit – perhaps 5 percent one year, 14 percent another. One way to smooth them out a bit, while still getting a sense of how they may be changing, is to calculate a moving average.

For three-year moving averages, you’ll first average the returns for years 1, 2 and 3. Then you’ll average years 2, 3 and 4. Then years 3, 4 and 5, and so on, ending with years 18, 19 and 20. You’ll end up measuring 18 three-year periods. While a graphed line of the original 20 numbers might have been jagged, with sharp peaks and valleys, the 18 three-year averages will produce a smoother line.

Some investors study moving (or “rolling”) averages of stock prices closely. We don’t see much value in that, though. We’d rather focus on a company’s financial health, its competitive position and its long-term growth prospects.

My dumbest investment

My dumbest move was selling 9,000 shares of Baidu after its 10-for-1 split back in 2010. That was dumb! – L., online

The Fool responds: That does look like a regrettable move, as the stock was selling for around $70 per share after that split, and was recently around $140, twice that. (It actually topped $250 per share in 2014!) You didn’t explain why you sold, though. If you no longer had confidence in the company’s prospects, then selling was the right thing to do.

Baidu is the parent company of China’s largest search engine, with a market value recently near $50 billion. Its growth has been slowing, dismaying some investors, but it’s still growing – and investing in further growth, too, in fast-growing categories such as video streaming and online-to-offline (O2O) initiatives. Those investments are quite promising: Its iQiyi video portal is reaching more than 500 million users, and its O2O businesses, the Qunar travel portal, Nuomi group-buying hub and Baidu Takeout Delivery, have seen their gross merchandise volume more than double over the past year.

With billions in cash available, the company is well positioned to make strategic acquisitions to further position it for growth. If you’re not too risk-averse and have a long-term investing horizon, you might aim to make up for your dumb move by getting back into Baidu. Its recent price is rather appealing.