Activision Blizzard (NASDAQ: ATVI) may be worth almost 30% more than its current price according to a Barron’s feature article.  The article notes that this is the one  video game company to benefit the most if  games will eclipse film and television in as little as five years… With its wildly popular Guitar Hero, World of Warcraft, Call of Duty, and more…. Barron’s thinks it has the most to gain.

American International Group Inc. (NYSE: AIG) has become crack for day traders.  Runs of $5 and $10 in a day are being seen and they  are now so fast that that many traders are having to buy and sell put and call options because they can’t get a fill fast enough on the stock unless they want to risk trusting a market order.  This volatility is not likely to stop as long as the markets stay favorable.  Interestingly, there are no real targets on it, its value is completely up for debate, and it is heavily shorted.  After closing up 5% just above $50.00 on Friday, and after seeing $55.00 intra-day, we wanted to beg the sinful question… What does $100 AIG look like????

In yesterday’s DAY TRADER alerts, we noticed that four of our six picks were hitting new 52-week highs… Traders frequently chase stocks on highs as more highs often beget more highs….

The FDA calendar…. Allos Therapeutics Inc. (NASDAQ: ALTH) is braced for a September 2 announcement from a regulatory panel which is reviewing its cancer drug candidate pralatrexate.  This stock pulled back and came down about 7% from the highs of the week to close at $7.48 and its 52-week trading range is $3.82 to $9.95.  With a $667 million market cap, Allos is going to be one of this week’s top small-cap biotech stocks to watch.  You don’t have to take our word for it… Look at Friday’s massive options trading just in the SEPTEMBER Put and Call options where bets were made with real cash:

• $7.50 CALLS 1,070 contracts traded Friday vs. open interest of 5,086 contracts.
• $10.00 CALLS 3,251 contracts traded Friday vs. open interest of 19,302 contracts.
• $12.50 CALLS 2,121 contracts traded Friday vs. open interest of 1,255 contracts.
• $2.50 PUTS 11,649 contracts traded Friday vs. open interest of 4,616 contracts.
• $5.00 PUTS 12,871 contracts traded Friday vs. open interest of 54,723 contracts.
• $7.50 PUTS 2,865 contracts traded Friday vs. open interest of 6,074 contracts.

Tree.com, Inc. (NASDAQ: TREE) may have just gotten its future dimmed.  Tree’s LendingTree.com unit filed a lawsuit last week against technology provider Mortech, Inc. for contract violation.  Mortech’s technology helps automate lender offer pricing and LendingTree asserts that Mortech violated its contractual covenants by partnering with Google Inc. (NASDAQ: GOOG) to launch an online mortgage loan aggregator service similar to LendingTree.   It said that it “was unsuccessful in resolving the dispute amicably and therefore took legal action” and is seeking temporary restraining order and preliminary injunction enjoining Mortech from assisting Google.  Tree has every reason to be scared here.  Google entering subscriber businesses or other premium businesses that offer a close alternative for free in order to hopefully score on advertising dollars down the road.  Go ask Stifel Nicolaus what it think this will do TREE… the brokerage firm cut its rating to SELL after the news.  This fell almost 6% on Thursday and then fell almost 7% on Friday to $7.38.  This was hitting $10.00 briefly in early August and its 52-week trading range is $1.42 to $13.07.

Earnings season is officially over.  But there are some stragglers still dribbling earnings, and VeriFone Holdings, Inc. (NYSE: PAY) is among them with its report on Tuesday September 1… VeriFone is not a market-call make or break stock, but the company has never really recovered from its pre-accounting woes.  Thomson Reuters has estimates pegged at $0.18 EPS on close to $202.2 million in revenue.  The merchant transaction processor closed at $11.06 on Friday and the 52-week trading range is $2.31 to $21.17 and its market cap is still just under $1 billion.  But when you go back to its pre-fraud stock level that had nothing to do with a recession or a bear market,  VeriFone went from $50.00 to $20.00 and then spent almost all of 2008 between $10 and $20 before the rug was yanked out from under it again.  So why do we care?  The stock is at a major inflection point.  Its 2005 IPO was at $10.00 and now literally just about every single investor who bought VeriFone since November 2008 is now very profitable.  This is also right at the old support level of 2008… Watch this one as the earnings reaction either way could be a substantial one.  Oddly enough, the options trading here in this one has been very soft.

S&P announced some index changes on Friday, and this will likely create pops in the two new S&P entrants.  Exponent Inc. (NASDAQ: EXPO) will replace Kirby in the S&P SmallCap 600 after the close of trading on Tuesday, September 8.  Encore Wire Corp. (NASDAQ: WIRE) will replace Axsys Technologies Inc. (NASDAQ: AXYS) in the S&P SmallCap 600 after the close of trading on a date to be announced since Axsys Technologies is being acquired by General Dynamics (NYSE: GD).

Speaking of Axsys Technologies Inc. (NASDAQ: AXYS), this will also be one to watch this week.  Axsys has received an early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, meaning there were no problems by the government review of its proposed acquisition by General Dynamics (NYSE: GD).  But the deal does remain subject to Axsys shareholder approval and customary closing conditions. Axsys is going to be key to watch as it has a special stockholder meeting for September 1, 2009 regarding this merger.  Many consider the buyout at $54.00 one that is too cheap, and its stock is already at $54.00.  We had a hedge fund manager contact us regarding the “deal looking too cheap” and he gave more detailed information on the options trading.  For starters, Gabellli’s GAMCO Investors, Inc. (NYSE: GBL) has amassed a rather large stake of close to 10% and many feel they and other holders are going to try to press for more many.  Our own digging around looks like many are wanting north of $60.00, and the 52-week highs aren’t just north of $60.00… the high is over $73.00.  The NOV-2009 $55 CALLS had 1,671 contracts trade on Friday versus a listed open interest of 15,496 contracts and we saw the FEB-2010 $55 CALLS had 2,224 contracts trade on Friday versus a listed open interest of 10,595 contracts.  Some think a better deal is going to be demanded.

Enjoy your weekend, and don’t be too shocked this week as trading volume starts to dry up with so many traders and investors out during the pre-Labor Day holiday week.  All major US financial markets are closed on Monday, September 7.

You are welcome to join our open email distribution list if you wish to receive reminders and updates on information like this and on IPO’s, mergers, Buffett and guru position changes, key analyst calls, and more.
JON C. OGG
AUGUST 29, 2009

Then in March after the market meltdown, the company engaged Jefferies to evaluate a possible sale and that sent shares instantly north of $40.00.  It has made a steady trickle-up since then to close at $50.00 yesterday.  An 8% premium is just unexciting.

The transaction is expected to be earnings-neutral in 2009 for General Dynamics and is expected to be accretive to General Dynamics’ earnings after this year.  If this is not even dilutive at all to 2009 earnings, we could argue that another bidder might be able to absorb more of a hit for 2009.  This is far from a ballsy buyout price, even if you consider that the climate of super-premium deals is not out there.

The transaction is subject to normal regulatory approvals as well as approval by Axsys Technologies’ shareholders, and the companies said this transaction is expected to close during the third quarter of the year.  We will not be surprised lawsuits by holders or on behalf of holders are filed demanding a higher price.  It traded at almost $80.00 last year, and as noted it has been a possible takeover speculation name for quite some time.

The options speculation that has been in this stock is also showing a significant mood of disappointment.  Usually you see higher options prices in out-of-the-money Call Options into a merger announcement.  Going out two months shows that the August $55.00 Calls has a price of $0.25.  That is out of the money, and this $0.25 price looks like it is actually DOWN $2.60 from this week’s spike-up prices.  In short, speculators got this one wrong on the price and right on the transaction.  The open interest for June-09 was 6,201 for the $50 Calls and that price looks only up $0.50 at $3.10 today.  The August $50 and $55 Calls had open interest of 1,636 and 1.189 contracts respectively, and the prices on both of those are down today.  In short, the bet in the speculative calls options got the  price very wrong.

Axsys Technologies is a global leader in the design and manufacture of high-performance electro-optical and infrared sensors and systems and multi-axis stabilized cameras.  By the sound of it, it is just what you think it is.  Surveillance and security, plus the offensive applications needed for military use.  Clients are the U.S. military and homeland security agencies, military and agency systems support integrators, law enforcement, and commercial customers in high-performance markets for aerial and perimeter surveillance applications. Axsys Technologies became a solid player in optical solutions for surveillance, reconnaissance and targeting applications.  This would be a solid product addition for any of the key defense and homeland security giants.

As of March 28, 2009 , the company had a backlog of $162.1 million and anticipates 2009 sales of $280 million.  Analysts are actually ahead of the company with Thomson Reuters consensus estimates of $284.9 million for 2009 and $318.3 million for 2010.  There has been at least some history of significantly beating earnings expectations in some quarters.

We will have this one under an expedited full review for our Special Situations Newsletter, and a decision will be made on that review in the next few days.

General Dynamics employs 92,900 workers globally, while Axsys has close to 1,000 workers.  With the size of General Dynamics and with a solid position in aviation, combat systems, armaments, munitions, shipbuilding, marine systems, information systems, technology, and more, we think that Axsys will be a rather easy operation to integrate for General Dynamics.  It would also be easy for another large competitor to integrate, and what is obvious as a heart attack is that a larger defense player and homeland security player would be able to instantly turn on significantly higher orders.

The other issue we have with the premium here is that the investor climate has changed significantly since the March lows and since the company put itself up for sale.  CEO’s are growing more confident than they have been for months and months.  This total buyout premium also does not look like that much more of a significant percentage gain from after the “post-exploring the the sale” announcement when you compare this to peers.  It is a premium and outperformance, just not an exciting amount.  Not really at all.

By our count, there are more than 10 other companies which could be or could have been buyers of Axsys, and that number would be higher if some of the more diversified and conglomerated companies had not seen their common stock get so battered before the March to present rally.

There are many hurdles that could be in place to another merger deal despite our opinion.  What those are will not be known until the proxy materials are reviewed.  But that could be tools already under management’s control, a break-up fee, and other tools.  We have inquiries into other special situation analysts in an effort to get more color here.

Our ending takeaway here is that this merger could command a higher premium from another large defense and homeland operator.  How much higher, that remains the question.

Jon C. Ogg
June 4, 2009

• Axsys Technologies (AXYS) Raised to Overweight at JPMorgan.
• Crucell (CRXL) Started as Buy at Jefferies.
• DuPont Fabros Technology (DFT) Raised to Outperform at Wachovia.
• Level 3 Communications (LVLT) Raised to Hold at Stanford.
• Ligand Pharmaceuticals (LGND) Started as Buy at Merriman Curhan Ford.
• Northrop Grumman (NOC) Raised to Outperform at Bernstein.
• Oxigene (OXGN) Started as Buy at Merriman Curhan Ford.
• Pfizer (PFE) Raised to Outperform at Leerink Swann.

Jon C. Ogg
February 12, 2009

Axsys (AXYS) upped to "buy" at Morgan Joseph.

Yum! (YUM) upgraded to "buy" at Argus.

AgFeed (FEED) downgraded to "neutral" at Global Hunter.

Sources: Briefing.com and wire services.

Douglas A. McIntyre

• AECOM (ACM) Started as Outperform at Baird.
• Axsys Technologies (AXYS) Raised to Outperform at Morgan Keegan.
• Cintas (CTAS) Started as Overweight at JPMorgan.
• Covance (CVD) Started as Buy at Piper Jaffray.
• Gilead (GILD) Started as Buy at Stanford Group.
• PPD Inc. (PPDI) STarted as Buy at Piper Jaffray.
• VisionChina Media (VISN) Strated as Buy at Piper Jaffray.
• Environmental Power Corp. (EPG) Cut to Neutral at Merriman Curhan Ford.
• inVentiv Health (VTIV) Cut to Hold at Jefferies.

Jon C. Ogg
December 23, 2008

• American Express (AXP) Started as Sell at Banc of America; Started as Sell at Citigroup.
• Axsys Technologies (AXYS) Cut to Underweight at JPMorgan.
• BJ’s Wholesale (BJ) Cut to Neutral at JPMorgan.
• Cavium Networks (CAVM) Cut to Market Weight at Thomas Weisel.
• Electronic Arts (ERTS) was downgraded at Citigroup, Banc of America, and piper Jaffray.
• Ericsson (ERIC) Cut to Hold at Citigroup.
• FLIR Systems (FLIR) Cut to Neutral at JPMorgan.
• FMC Tech (FTI) Cut to Sell at UBS.
• General Electric (GE) Cut to Neutral at UBS.
• Heartlan Express (HTLD) Cut to Sell at UBS.
• Knight Transportation (KNX) Cut to Sell at UBS.
• Nike (NKE) Cut to Neutral at Banc of America.
• Sina (SINA) Cut to Hold at Citigroup.

Jon C. Ogg
December 10, 2008