Technology is the biggest producer of slot machines in the world.
Recently, that reputation hasnt done much for shareholders. The stock
is down more than 30% since last spring, recently trading at $30.
Investors are fleeing because the current replacement cycle for slots
is winding down. Casinos once scrambled to put in machines that use
money cards instead of coins. Now they are nearly done.
But investors selling for this reason are shortsighted, says Christopher
Bonavico. He thinks IGT investors luck will change, which is why he
holds shares in the Transamerica Premier Focus fund. The fund is up over
5% in the past three years compared to gains of just over 1% for the S&P
500 in the same time frame.
Pessimists are missing two big trends ahead for IGT, says Bonavico.
First, slots will soon start using the server-software model. These
machines will let casinos switch games quickly by downloading them into
slot machines — to satisfy rapid changes in gambler tastes. IGT is in
the testing phase right now, and many investors wonder whether this
model will ever take off.
But the concept makes sense because it will give casinos greater
flexibility and lower game prices. For IGT it means lower installation
costs. True, game price declines seem bad for IGT. But the company will
sell a bigger variety of them without needing to install new machines.
That means higher margins.