MGM Resorts, LVS and Wynn Highlighted in Goldman Sacks’ Sharpe Ratio Picks

Three leading gaming companies made it to the “high Sharpe Ratio” basket comprised by the leading global investment banking, securities and investment management firm, Goldman Sachs. Investors with the firm recently rebalanced the aforementioned basket, as announced in a report released by Seeking Alpha.

Currently, the high Sharpe Ratio basket helps identify 50 S&P 500 stocks that are expected to offer the best risk-adjusted returns within their respective sectors peers. The leading gaming and entertainment companies, MGM Resorts International, Las Vegas Sands (LVS) and Wynn Resorts made it within the basket’s consumer discretionary category.

The trio were the only companies within the gambling sector on the list. What’s more, MGM, LVS and Wynn represented three out of the total of five companies in the aforementioned category. The other two on the list included McDonald’s Corp. and LKQ Corp.

Per the list, as of June 21, the expected return/implied volatility for MGM is 1.1, while LVS’ expected return/implied volatility was 1.2. On the other hand, Wynn Resorts’ score was 1.4, the highest out of the three gaming and entertainment companies on the list.

“Since June 2023, the basket has underperformed the S&P 500 (SP500) by 608 basis points and had a realized risk-adjusted return of 1.9 vs. 2.7 for the S&P 500. But compared to the equal-weight S&P 500 (RSP), the basket has outperformed by 419 basis points since June 2023 at 22% vs. 17%,”

reads a statement released by Goldman Sachs

Analyst Comments on the Development

David J. Kostin, a top-rated expert and analyst, explained: “Recent underperformance relative to the aggregate S&P 500 (SP500) is at odds with history as the strategy has a long track record of outperforming the index on both an absolute and risk-adjusted return basis.”

Additionally, Kostin said that the Sharpe Ratio basket has “posted a 63% semi-annual hit rate of outperformance vs. the S&P 500 (SP500) with an average excess return of 221 basis points (and 442 basis points annualized),” since 1999.

Generally speaking, a Sharpe Ratio that is higher than 1.0 is regarded as acceptable to good by investors. On the other hand, investors consider a Sharpe Ratio above 2.0 as very good, while a ratio of 3.0 or higher is recognized as excellent.