Contrarian though it may seem, the casino sector has been a good place for investors to hedge their bets on the stock market this year. One big winner is International Game Technology.
IGT makes roughly 65% of the slot machines sold in the U.S., giving it a plum market share. Sales have climbed steadily since 1999, and they aren't likely to slow down anytime soon, since slot machines are a casino's cash cow (slots feed 80% of a typical casino's take). Plus, IGT keeps coming up with video games centered around gambling, such as Austin Powers and Deuces Wild video poker games.
The company, headquartered in Reno, Nev. (where else?), solidified its position as the top slot shop with its acquisition of Anchor Gaming last year. Since then, IGT has been increasing its cash flow, buying back shares and paying down the debt from its acquisition.
The stock is up 16% since Kiplinger's Personal Finance first wrote about it last spring (see "Legal Bandits"). And for the past three years IGT has returned an annualized 53% -- we'd guess that's more than the typical take casino goers get from the slots. John Calamos, manager of Calamos funds, thinks IGT will continue to benefit from the expanding gambling industry (for more, see "A Less Bumpy Ride With Convertibles").
IGT trades at 17 times 2003's consensus earnings estimate of $3.84 per share. Profits should continue to grow 15% a year, on average, over the next three to five years. Not much of a gamble.
