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The Best Way to Invest in the Global Gambling Surge

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Ryan Fuhrmann

Back in January, I highlighted how state and local governments were starting to turn to legalizing gambling to shore up their tax bases. Since then, that's only increased. Massachusetts recently held a forum to hear arguments on why it should develop casinos, and Maryland set up a commission to investigate whether it should expand its gaming operations.

State and local governments are increasingly looking to share the pot of global gambling revenue.

Gaming activity continues to heat up in the United States, but is already red hot overseas. The Chinese province of Macao has grown much larger than Las Vegas as the world's largest gambling destination. Last year, Macao reported an estimated $33.5 billion in revenue, or five times that on the Las Vegas Strip. Las Vegas-based operators are leading the charge into these markets. MGM Resorts (MGM), one of the largest casino operators in the world, has turned to Macao and just reported 17% sales growth to HK$5.5 billion, or about $708 million.

I also pointed out that the leading gaming suppliers are a great way to gain exposure to the global gaming buildout. Casinos must spend billions of dollars building casinos and also take the risk that goes with running slot machines and table games. The suppliers simply sell the games to the casinos, though in some cases they also get a percentage of the winnings.

One of my picks was WMS Industries (WMS). I am happy to report its stock has rallied modestly so far in 2012. The stock should have plenty room to run further.

WMS designs and distributes some of the most popular games in the industry. These include slot machine names such as Monopoly, The Wizard of Oz, The Lord of the Rings and Battleship. WMS considers itself one of the pioneers in helping casinos roll out video game machines that offer a dizzying array of winning combinations. The technologies are also very advanced and allow a casino to track use in real time to make changes to keep the gambling dollars coming in.

Last year, WMS generated total revenue of $783.3 million. This represents a 45% jump from $539.8 million five years ago. Before the credit crisis, gambling was thought to be recession-resistant, but total industry revenue plummeted along with rising unemployment. WMS, though, experienced steady sales growth, which speaks to a benefit of the gaming suppliers. Regardless of total industry spend, casinos must maintain their games and strive to offer the most popular names out there.

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