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The gaming sector has been hurt by declining software and hardware sales. Activision Blizzard ( ATVI) just killed its Guitar Hero franchise and won't have a new World of Warcraft release until 2012.

But the company does have 12 million online subscribers driving profits. Activison expects the market for online-enabled game consoles like the Xbox and PS3 will grow by 24% and is focusing on this business as opposed to developing games for smart phones.

Rady thinks ATVI is an attractive takeover candidate that will outperform. He says, "Dominant, best of breed company with a 12-18 month price target of $18, approximately 50%."

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