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Tickers in this Article: CRYP, MSFT, WMS, IGT, BYI
It's a widely tossed around idea that things like cigarettes, spirits and gaming are good investment candidates, since they appear to be resistant to any economic storm. No matter what happens, folks will find a way to partake in what gives them satisfaction. (For more bulletproof industries, check out, Industries That Thrive On Recession.) Hold or Fold
Cryptologic (Nasdaq:CRYP) is an software developer focused on the internet gaming market. It develops online gaming software and licenses that software to third party gaming operators. In other words, the company essentially pays one time development costs and then sits back and collects recurring licensing revenues. This is what Microsoft (Nasdaq:MSFT) does with its software and the company mints money as a result.

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Cryptologic is certainly no Microsoft, but is a business with both controversy and appeal. First of all, Cryptologic trades on the Nasdaq but is based in Ireland and doesn't operate in the U.S. anymore. A few years back, the U.S. government banned any sort of "online gambling" involving money. This law did nothing more than make such businesses locate elsewhere.

It's important to realize Cryptologic software development and licensing practices are not illegal. Unfortunately, the company feels the effects of any regulatory hurdles because its customers provide the betting services.

Playing Overseas
Nonetheless, Cryptologic is developing a prosperous business overseas. It continues to sign new licensees and develop new products that are innovative and desired by new and existing customers.

At $5.75, the company is valued at $73 million. Before the U.S. laws went down, shares were north of $25. It's not likely that Cryptologic will see that share price anytime soon, but if new management continues to progress as it has, it could be a $10 stock in the next two years. It's a debt-free company with nearly $3 per share in cash.

The balance sheet is healthy, with nearly $30 million in cash, total assets of $90 million against total liabilities of $26 million. Management has indicated that it is not opposed to using that cash to buy back stock or adding to the dividend. The company started paying dividends for the first time recently, and the shares yield 2%. (For more, check out Reading The Balance Sheet.)

The competitive landscape is very fragmented with most residing overseas for legal reasons. International Game Technology (NYSE:IGT) is a $6 billion business that makes gaming equipment along with the licensing of intellectual property. Other names include Bally Technologies (NYSE:BYI) and WMS Industries (NYSE:WMS), both multi-billion dollar organizations that also provide hardware and software.

The Bottom Line
Cryptologic's attraction is that it's a pure play software developer, so as the company generates more and more revenues, it practically all falls down to the bottom line. It's a tiny business operating in a huge market, and a rock solid balance sheet to steer it through the choppy seas as well as give it opportunities to expand.

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