Tuesday, December 30, 2008

Another Upgrade for Axsys Technologies (AXYS); Sticking with AeroVironment (AVAV) Instead

I'm keeping this name on the radar as I like both defense and healthcare as sectors for 2009, but it's been trading like a Chinese small cap (or US financial) the past few weeks; crazy volatility. Axsys received the second upgrade in two weeks today [Dec 23: Axsys Technologies Upgrade]
  • Shares of Axsys Technologies Inc. climbed Tuesday after a Morgan Joseph analyst upgraded the stock, saying it has been oversold -- and the company has "indicated that its business is operating smoothly" despite the economic crisis.
  • "We visited clients with management last month, and during those meetings, it was reiterated that pricing and volumes have not been affected by weak general economic conditions," wrote Morgan Joseph analyst Michael French in a note to investors. He upgraded the stock to "Buy" from "Hold," with a target price of $64.
  • French said the company's shares have been weak since an analyst downgraded them based on valuation. Earlier this month, a JPMorgan analyst downgraded Axsys to "Underweight" from "Neutral," saying the stock is priced at too high a premium to its rivals.
I like this name for the relative security of its revenue stream (heavy dependence on federal government) but the volatility is simply too wicked of late. Technically, one could make a relatively shaky case that the stock is forming a double bottom (with mid October lows)

As I said last week, I am going to err on the side of caution and we'll focus on better charts - for AXYS we'd want to see the stock clear back north of the 50 and 200 day moving averages which are converging in the mid $50s. Frankly until proven otherwise this is the type of chart I'd short as it rallied back to resistence ($56-$57)- until proven it has real legs. The other issue is valuation - even at these prices the stock already trades at nearly 20x 2009 estimates. After last week's upgrade, and large 1 day bump, the stock gave back all its gains immediately - not a sign of strength in these eyes.

Instead I added a touch to AeroVironment (AVAV) yesterday as the stock bounced beautifully off the 50 day moving average... so I can play the same theme with a much better chart.

Long AeroVironment in fund and personal account

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