Jim (cont'd):     


How is our defense street cred?… Our last speculative defense pick?… AeroVironment, Inc. (AVAV)… which makes unmanned aerial vehicles… is up 31% since we last talked about it and had the company CEO on the show back on October 28th I mean the market has been horrible since then… get this it is a whopping 87%…. since I recommended it on March 8Th of 2007...

I think Axsys could be the son of AVAV…

Axsys Technologies, Inc. (AXYS) occupies an interesting niche in the defense world… it makes high performance surveillance cameras and imaging systems… we are talking about proprietary top of the line procession instruments here… not a cellphone camera… this is equipment that has to be perfect or it won’t work… the applications for this stuff range from highway surveillance, to missile tracking. to unmanned drones… like the kind we use for unmanned bombing missions over Iraq… and more increasingly in Afghanistan… to driver soldier vision enhancement… this is the kind of high tech gear that saves soldiers lives in battle… something that everyone supports… and it is also what is called a force multiplier… meaning it lets us get away with fewer boots on the ground… something that we know Obama supports… at least in Iraq… it is essential to the Army’s we own the night applications in Afghanistan… that give our soldiers a huge asymmetrical edge over the enemy while fighting in the dark.

This company is all about making our guys like the Predator… and let me tell you if Arnold and his unit had the gear Axsys makes in the movie… then Predator would have been prey… Billie would never have exclaimed we are all going to die… and Blain would have had time to bleed… Axsys sells to all kinds of defense agencies… the DOD, the border patrol… and also to big defense contractors like Raytheon, Thales, Northrup Grumman, Boeing, Lockheed Martin… it has got everybody… and Axsys may be the only… it is the only $835 million company… but it is a legitimate one… with real customers… because 90% of the companies sales comes from defense… and almost all of that comes from the US… it is much less exposed to the fatuities of the economy and the strong dollar… which is killing a lot of companies profits.

Axsys has a bunch of key contracts coming up… so here is some data points… there is a $2 billion contract for what is called drivers vision enhancer… family of systems… which allows drivers to see better particularly at night with infrared vision… Axsys has partnered up with Raytheon and BAE Systems to try to get that contract… it will be awarded in the middle of the year, you have to be a little patient… there is a also $2.5 billion border security program contract from Saudi Arabia that Axsys could get a piece of… in addition to these big potential contracts, Axsys has continuing to make bookings from follow on orders… basically orders for things like replacement parts for companies… and departments that it has already sold things to… 70% of the companies bookings were follow on orders… so it looks like Axsys has a healthy source of recurring revenue too… something we like to see because it gives the companies earnings some visibility… and you usually don’t get that kind of thing in a speculative play… as of the end of the third quarter, Axsys had a $184 million backlog… and around 91% of these orders will be shipped over the next year.

Now, remember… it is a speculative stock… remember how we always do… we use the cooling off period… we have the whole weekend to work on it… means you want to be very careful when you buy it… don’t chase it as it goes higher…use limit orders and buy in small increments… it also means that I don’t want you to get in ahead of when it reports Wednesday February 18th… no, I am not telling you to buy it for the quarter… I am telling you… why don’t you buy it after the quarter as a matter of fact… I mean the company has got a great record… but I like it as a speculative investment… not as an earnings trade… so wait for Axsys to report before you pull the trigger… evaluation, 13.2 times earnings, 2010 earnings… long term growth rate of 18.7%… its not unreasonable to expect this stocks multiple to be at least the size of its growth rate… that would make AXYS a $56 stock masquerading as $40 stock… the thing is down 49% off of its high… it started tumbling in December of last year when the analysts who covered it from JP Morgan downgraded the stock… 11% decline in a single day… since then the same analysts has upgraded twice… but it has not been able to get any traction… because of the miserable stock market… I have a hard time believing that it won’t catch a takeover bid from one of the larger defense contractors that it does business with… why not?

Here is the bottom line…