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Stock Strategist Industry Reports

Over the Long Term, the House Always Wins

Competitive advantages will eventually trump slower growth for the gaming manufacturers.

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Think about gaming, and glitz and glamour may come to mind. However, the industry has been anything but glitzy and glamorous, as overexpansion and poor consumer discretionary spending growth have plagued many gaming-related entities. This has been especially true for the gaming manufacturers--slot machine suppliers--which have been forced to retool their operational strategies in an effort to drive returns.

The robust growth that WMS Industries (WMS), International Game Technology (IGT), and Bally Technologies (BYI) experienced during most of the 2000s has diminished over the past few years. The toxic mix of customer overleverage, lackluster consumer discretionary spending growth, and poor operational execution has hampered these players. Nonetheless, we still believe the gaming manufacturing industry has an inherent narrow economic moat and the current poor disposition of the gaming market has created some solid opportunities for investors.

Vishnu Lekraj does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.