Dear Sheryl,
As I mentioned in Friday’s Weekly Update, the first full week of September was characterized by profit taking, particularly in the technology sector. Now, I fully expect that our technology stocks will rebound. We have some of the brightest stars in the tech sector on our High-Growth Investments Buy List right now—each has stunning sales and earnings projections for the current quarter. However, there was one stock that has been trending lower in recent weeks, and it doesn’t show signs of rebounding any time soon. Over the weekend, my screens detected another drop in institutional buying pressure for Melco Resorts & Entertainment Ltd. (MLCO). So, MLCO was downgraded to a D-rating in Portfolio Grader. I monitor buying pressure very closely, because it's a telltale indicator of upside (or downside potential). Unfortunately, Melco Resorts no longer has the type of underlying strength that we want to see from a High-Growth Investments stock. Today, I’d like everyone to sell MLCO. As a refresher, I added MLCO in the June 2017 Monthly Issue. Melco Crown was a leading casino operator in Macau, the world’s fastest-growing gambling destination. What’s special about Macau is that it’s the only place in China where you can go to gamble in a casino. At the time, I recommended MLCO as a play on this virtual monopoly. For the first several months on the Buy List, MLCO lived up to expectations. Unfortunately, 2018 has brought some unexpected headwinds that have weighed on the stock. First, the stock has gotten caught up in the general volatility impacting Chinese stocks as a whole. Second, China has started to crack down on gamblers who are skirting capital controls in Macau. Previously, pawn shops in Macau offered cash-back services, which allowed mainland Chinese citizens to circumvent the daily cash withdrawal limits of 20,000 yuan ($3,200). Authorities have since prohibited pawn shops from offering cash back, closing this loophole. Fearing that this would put a damper on gambling activity in Macau, some investors have sold their shares of MLCO. Finally, analysts have reduced their earnings estimates going forward, which is a red flag. For the current quarter, analysts expect flat earnings from Melco. However, given that estimates have been falling, it’s likely that Melco will miss expectations. Keeping this in mind, it’s time to cut ties with MLCO. If you bought the stock at the time of my original recommendation, you should be selling it at about breakeven. Please get those sell orders in, and I’ll be in touch on Friday with your Growth Investor Weekly Update. Sincerely, Louis Navellier
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