A "Settlement" Trade

01/07/2005 12:00 am EST

Focus:

Mark Leibovit

Chief Market Strategist, VRTrader.com

Mark Leibovit is a top-rated trader, utilizing a proprietary system known as volume reversal analysis. He will also soon launch a mutual fund, the Potomac Flexible Plan VR Fund, based on his strategy. His Top Pick is a play on litigation settlement.

"Ampex (AEXCA OTC Bulletin Board) has developed proprietary technology relating to the electronic storage, processing, and retrieval of data, particularly images. It holds approximately 600 patents and patent applications covering digital image processing, data compression, and recording technologies. The firm recently announced a litigation settlement with Sony. Under the terms, Sony will be licensed under several Ampex patents to manufacture and sell various products, including digital video tape recorders and digital still cameras.

"In return for a payment of $40 million, Sony will be permitted to use Ampex patents in any of its products for the period through April 2006. After that time, the licenses provide for running royalties based on sales of products including to the extent that they utilize Ampex patents. We note that the settlement is estimated to be worth about $40 in cash. Future earnings could drive the stock to $100. We rate this a buy. Pullback risk is back to the mid 20s since the recent advance has been nearly straightline, so some caution is advised if investors are planning to establish full positions at this time."

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