MarketWatch: Gaming-Fund Manager on MGM, Scientific Games, Gigamedia

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CHICAGO (MarketWatch) -- Dan Ahrens has been on a serious losing streak in Las Vegas but since he always bets on the house, he's confident that his luck will soon change.

Ahrens is manager of the Ladenburg Thalmann Gaming and Casino Fund, which is down more than 40% over the past 12 months as investors sell gambling stocks in the wake of an accelerating decline in visitation and gambling revenue in Sin City and elsewhere.

"The selling has been very overdone," Ahrens said. "Gaming revenues are down somewhat in Vegas but it is far from a ghost town.

"I do like the large Las Vegas operators because they are also Macau operators," he added, referring to the Chinese territory that has been growing by leaps and bounds since foreign operators were allowed in.

MGM Mirage

Among his top picks is MGM Mirage, The multinational casino giant is majority controlled by billionaire Kirk Kerkorian while the investment arm of the government of Dubai owns a significant stake -- plus a half interest in the company's colossal City Center project on the Las Vegas Strip.

The stock is a poster child for the sector's woes, falling from $100 and change in October to a low of $21.65 in mid-July. It has since rebounded a bit, closing at $27.73 on Thursday, down 47 cents, but Ahrens sees plenty more upside.

"It has been painful to own," he conceded about MGM Mirage, "but the sell-off was a huge overreaction. It is easily worth in the $40s or $50s [even in this market]."

One reason, he said, is because company executives have floated the possibility of dividing the business into separate gambling and hospitality units, which would immediately add value to the stock. And because of the ownership structure, management can move fast.

"Kerkorian and Dubai won't sit by idly while losing that much value," he predicted. "Some type of transaction between all these parties is quite probable."

Scientific Games

Ahrens also sees potential in Scientific, a Hong Kong-based firm that trades on the Nasdaq.

"This company is the best of both worlds in both online gambling and online video gaming," he said, with the bulk of its revenue coming from Europe, Asia and Canada.

The shares fetch the same low multiple as many online gambling stocks, Ahrens pointed out, but that valuation is undeserved since "it has never operated in the U.S. and has no plans to" -- thus avoiding the legislative risks that torpedoed the sector following the passage of new laws Stateside and some high-profile prosecutions of operators.

The company, he added, also does "great business in non-gambling online gaming, and recently licensed EA Sports NBA game in China, where the NBA is just huge."

Shares of GigaMedia closed Thursday down 20 cents at $11.59. The stock was as high as $25.42 last November and scraped as low as $10.16 in July.

William Spain, MarketWatch.com

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