DailyWealth Investment Newsletter  

About DailyWealth Premium Content DailyWealth Archive
DailyWealth Investment Newsletter DailyWealth Contributors DailyWealth Resources DailyWealth Market Window
 
DailyWealth Print Edition Print Edition | Sponsored Link:
True Wealth Login
This Is Not The Way To Gamble
by Tom Dyson
August 23, 2006

On paper, everything looks first-class...

They have an original product that could change the poker world forever… half-a-dozen tables already installed in casinos in the USA… and a contract to supply tables to the entire fleet of Carnival cruise ships. Two other cruise lines are also interested in joining the program.

“In ten years, this could be a billion-dollar company,” I thought to myself.

After all, it’s time for a change. The poker industry is well suited to technology and automation, yet its mechanics haven’t changed in 200 years. The first company that pulls this off will make a fortune… I thought it could be Pokertek.

Here’s what I’m talking about:

A computer can run a game of poker far more efficiently than a human dealer. Look at online poker. You don’t need cards, chips or a flesh and blood dealer to play poker. Everything can be automated, even in a brick and mortar casino.

Automation has many benefits. The game moves twice as fast, so the casino’s revenue doubles and players get more action. The dealer is axed, so the casino saves on wages and the players don’t need to tip. No more betting errors or bum deals.

Pokertek (PTEK) manufactures an electronic poker table called the “PokerPro”. It’s just as I described it above... touch screens in front of each player and a display in the center of the table for the community cards. To see your cards, you touch the screen and the ends curl up to reveal the suit and number. The computer controls chip counts, betting, and dealing.

I am a believer in on-the-ground research. Before I purchase a stock, I like to visit the company and interview the customers. Last weekend, I drove to Tampa Bay to check out the PokerPro tables in action. The Hard Rock Hotel and Casino there has two PokerPro tables up and running. Here’s what I found…

The card room at the Hard Rock is large... definitely bigger than 90% of the card rooms in Vegas. And busy. We arrive at about two o'clock on a Monday afternoon. I worry there won't be anyone there. Wrong. It's packed. I guess there were around 30 tables in this room. They are all being used. There was even a line to sign up on the table waiting list... something I'd never seen before.

Anyway, as I go to stand in line, I notice the two PokerPro tables, right at the front of the room, just next to where I am standing. Astonishing. No one is using them.

I couldn't believe - in a huge busy card room - no one was using either of the tables.

So I go to customer service and ask to speak to the person who knows most about these tables. I asked her why the tables are empty. She says, “players would rather hang around watching for five hours, and wait for a seat at a live table, than sit at the PokerPro.”

Wow.

Next I asked her if she could see a future for electronic tables... or maybe even the death of the live dealer in ten years' time. “No way. Our clientele come to the casino for the full experience. These things have their use, but replacing dealers is not one of them.”

One of the most important rules of investing is, “listen to the market.” I thought the PokerPro was a great idea. But in the casino, no one was using the table. The market told me I was wrong.

There's another thing. I don't have any confidence in the company that makes these things. For one, I left six messages with different people at Pokertek over the last couple of weeks…

I said I was an investment analyst with a large research firm and told them I wanted to write a story about them. They never called me back. This is a huge red flag for me.

Finally, this company is valued at $100 million dollars… but its earned only $763,000 in its entire life. That’s it. In fact, news just came out that the casinos in Oklahoma just decided to ditch their contract with Pokertek and return four PokerPro tables.

Now, I'd pay $100 million for a company with no sales if it had a great product that was flying off the shelves. But for a company whose product sits unused in a busy casino?

No way. Thanks to boots-on-the-ground research, my conclusion is this:

“In ten months, this could be a zero-dollar company…”

Good investing,

Tom

Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.

Sign up today to read more investment ideas from Tom Dyson.

Email a Friend
Delicious
Reddit

Digg

RSS

WHERE THE BIG GAINS IN OIL STOCKS ARE

In the past four months, companies that provide the fluids, drills, pipes, and tools to extract petroleum have taken a backseat to a different kind of oil stock… the supermajor.

As big oil service firms like Halliburton sit well off their highs, integrated giants like ExxonMobil and Royal Dutch Shell are enjoying huge money flows and higher stock prices. Legendary investor Warren Buffett has even put hundreds of millions into the sector.

As usual, we asked oil stock expert and editor of the S&A Oil Report Matt Badiali for his take on what’s going on here… his reply:

“The share prices of the supermajor oil companies have generally moved sideways for the past few years. But the market is finally realizing something important now...

That companies like ExxonMobil, Royal Dutch Shell, and ConocoPhillips know how to make plenty of money with oil at $40 a barrel… and they’re minting money with oil prices at $70. You have to own a few of these stocks.”

-Brian Hunt


“Foreign private investors were net sellers of U.S. stocks in June, for the first time in nearly two years.

This marks a reversal from the first quarter when they were net buyers to the tune of nearly US$20 billion per month, comparable to their purchases at the height of the equity bubble in 2000. Many foreigners hold a structurally bearish view on the U.S. market owing to concerns about the dollar, housing and consumer debt.

But the U.S. equity market tends to outperform the global benchmark when global growth is decelerating, as is the case today.”

- BCA Research

“Russia paid off the last of its Soviet-era debt to the Paris Club of creditors Monday, a highly symbolic move that underscores how much oil and natural gas revenues have done for the nation's economy eight years after it went into default.

A budget surplus of $56 billion is projected for next year and hard currency reserves are the third-largest in the world, after those of Japan and China, at $277 billion.”
- Reuters

“German investor confidence has plunged this month to its lowest level for five years, suggesting that the recent strength of Europe’s largest economy might soon wane.

The Mannheim-based ZEW economic institute said that the unexpectedly steep decline in its economic sentiment index, by 20.7 points to minus 5.6 points in August, signalled ‘a considerable economic downturn within the next six months.’

The index has now fallen for seven consecutive months and was last lower in June 2001.”
- Financial Times

Home | About DailyWealth | Premium Content | DailyWealth Archive | Contributors
DailyWealth Resources | Research Reports | Privacy Policy

Customer Service: 1-888-261-2693 – Copyright 2008 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202