Thursday, April 7, 2011

A Look At a Fund Manager's Top Takeover Picks

Our philosophy isn't to pick stocks based on ones potential for a buyout, but this theStreet.com report caught our attention. Harry Rady of Rady Asset Management owned biotech company Cephalon (CEPH) that recently got a buyout offer from Valient International (VRX). Since Stone Fox Capital also owned CEPH in our Opportunistic folios it was intriguing to see what else he picks, since we might have similar investment styles.

Looking over his list we actually already own one of his top picks in Savient Pharma (SVNT). He also lists
Activision Blizzard (ATVI) and NuVasive (NUVA) that have been on our radar. Might be time to double up research on these picks.

Rady sees 100% gains in both SVNT and NUVA and interesting that they are both in the medical/health sector like CEPH. SVNT has been a long term holding that we've ridden to the $20s only to see it crash back below $10 when the sale of the company failed. With the new management team in place, they appear to be the strongest pick in the group.

NUVA is also interesting as they've mainly been hit by issues surrounding insurance reimbursement following ObamaCare approval last year. Assuming that gets worked out this company should be back on track. The chart looks much improved after basing for the last 5 months making an appealing entry point.

ATVI becomes much more appealing if they can continue moving into online games, but with analysts expecting sales to decline 17% this year the stock might need to wait until growth returns.

Summary of Rady's picks:

  • Adobe Systems (ADBE) - Rady lists it as having 50% upside, but we'd be concerned about the issues with being excluded from the iPad. Apple (AAPL) rules the tablet world and this cuts them off. 
  • Activision Blizzard (ATVI) - the video game sector has been hurt by the move to Facebook and smartphone games. Or should I say, the established games developers like ATVI have been hurt because they were too focused on consoles. Rady sees a 50% upside. 
  • FLIR Systems (FLIR) - this manufacture of thermal imaging systems used by the military had been held down by fears of budget cuts. The stock has recently run so it doesn't appear to be the bargain that Rady mentions. 
  • Iridium (IRDM) - providers of mobile voice and data through satellites has been a long time struggle. They just can't ever get expenses inline with revenue while the market around them evolves faster then they can launch upgraded satellites. 
  • NuVasive (NUVA) - Rady sees a 100% gain in this stock that has dropped 50% because of worries over reimbursement of the the surgical treatments for spine disorders that their medical equipments concentrates on. Demand will only continue to grow as baby boomers get older. 
  • Savient Pharma (SVNT) - FDA approved drug for gout treatment that Rady sees a 100% gain as well. 
  • SandRidge (SD) - oil and natural gas exploration company that was a $60 stock and now trades for $13. The stock has more then doubled in the last few months and doesn't seem the bargain anymore. 

Disclosure: Long CEPH, SVNT, SD in client or personal accounts. Please review disclaimer page. 

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