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International Game Technology (IGT), SHFL entertainment Inc (SHFL): Make Gains From Gambling’s ‘Rise of the Machines’

Poker’s hot streak over the past decade appears to be cooling, if recent reports from Las Vegas are to be believed.  In the last two months, 8 poker rooms are said to have closed and replaced with slot machines.  Since mid 2007, Poker revenues have increased only 5 of 43 months since 2007, and generally, the per-table win has diminished to early 1990’s levels, according to UNLV’s Center for Gaming Research.  As context, Table-poker generated revenues of $123 million in 2012, a decrease over its peak of $168 million, contributing just 1.13% to Nevada’s total gambling revenues of nearly $11 billion in 2012.

International Game Technology (NYSE: IGT)

But while the fervor of table poker may be diminishing, don’t cry for Vegas just yet.  Despite a recent drop in revenue—the Nevada Gaming Commission recently announced January numbers indicating a 12.4% drop in year over year revenue—gaming tax collections are still up 5.5% for the first two-thirds of the fiscal year. And more broadly, Nevada’s total revenues gaming revenues have grown by 240% over the past 28 years, at twice the rate of table games.

So overall while the last six months of Vegas appears to be one relative stasis, if we were to see a rise of machines, here are few names that could benefit from an uptick in slot trends. Aside from market-beating strategies like ours (see how one has beaten the market by 20 percentage points in just six months), this list should provide ardent investors a solid starting point for further research.

International Game Technology (NYSE:IGT) announced recently that its Board of Directors declared a cash dividend of $.08 cents per share on its common stock, a 33% increase over the same quarter last year. Extending the longest streak in the gaming industry, this marked the 40th consecutive quarter that the company has paid dividends. The company that designs and makes gaming machines and systems has already seen improved interest from the smart money, as hedge funds’ invested capital of the 450-plus funds we track (learn why we track them here) in IGT spiked by almost 7% last quarter.

SHFL entertainment Inc (NASDAQ:SHFL), meanwhile, supplies products in a number of gaming categories, including electronic table systems. The company produces various products involving popular table game content using e-Table game platforms and electronic gaming machines, which include video slots and so-called “igaming.” The latter features online versions of SHFL entertainment Inc (NASDAQ:SHFL)’s table games, and spins them toward users with a penchant for social and mobile gaming. With no dividend and fair valuation metrics across the board, the true attractiveness behind SHFL entertainment Inc (NASDAQ:SHFL) is its growth prospects; Wall Street expects EPS to expand by 15% a year over the next half-decade. This is nearly twice the rate SHFL entertainment Inc (NASDAQ:SHFL) has averaged over the past five years, and places the company in the top third of the entire consumer goods sector.

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