After Penn, Where Lies the Next Takeover Bet?

As the gaming and horse-racing industries consolidate, others could follow the way of Penn National.
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Penn National Gaming (PENN) - Get Report was among the Nasdaq's biggest winners Friday, as the casino and race track operator shot up more than 21% after agreeing to a buyout.

Fortress Investment Group


and Centerbridge Partners agreed to pay $67 a share for the company. That $8.9 billion deal is old news now, however. We want to find out who is next.

Penn is part of two interesting racetrack portfolios that could offer more takeover targets as the gaming and horse-racing industries consolidate:

For instance, there is

Dover Downs Gaming & Entertainment


, a stock that's named in both portfolios.

The Dover, Del., company offers a forward price-to-earnings ratio of 16, vs. 28 for competitor

Churchill Downs

(CHDN) - Get Report

. Dover's 2% dividend yield and its short ratio of 11 also make for an interesting profile.

The short ratio refers to the number of days it would take short-sellers to cover their short positions if the stock were to start rising. With a short ratio of 11, it becomes nearly impossible for short-sellers to cover their shares without taking a significant loss. This is what could lead to a short squeeze.

Each month we update the

Top 10 Short Squeezes

, a list of stocks with the highest short ratios as well as significant insider buying. Among the stocks on the most recent list is

PW Eagle



Penn is also a holding in the

Vice Fund

(VICEX) portfolio. The fund's official profile makes no apologies: "The fund normally invests at least 80% of net assets in equity securities of companies that derive a significant portion of their revenues from products often considered socially irresponsible."

This strategy has paid off well for the Vice Fund, which has generated an 18%-plus average return over the past three years. Other Vice Fund stocks include


(MO) - Get Report


Las Vegas Sands

(LVS) - Get Report



(BA) - Get Report


The acquisition of Penn is not a fluke. The vice and gaming industries are being consolidated. While Penn was cheaper than most, with a 13 P/E, it still shows that the vultures are circling and it could pay to anticipate their next kills.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Dover Gaming and PW Eagle to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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