Tuesday, January 25, 2011
Criminal Minds: The Paranoid Portfolio (Part II)
Who isn´t afraid about the terror risks in airplanes, on airports and other public places? There is a growing industry which deals with these risks, and companies that are in the market for the so called "home security".
Every one who travels to the USA knows now the eye- and finger-scanners which the US Homeland Security uses for immigration control. One of the leading manufacturers is L-3 Communications Holdings (NYSE: LLL). This big technology conglomerate (market capitalization $8 billion) offers also the full-body scanners which are already in use at Amsterdam´s Shiphol Airport.
Although LLL has a lot of opportunities, the company relies upon on the US defense spending. In the last months, the risk that the US government cuts the expenses to control the budget deficit, set the stock price under pressure. Speculations about the US deficit and about US military expenses could therefore generate fluctuations for this stock price.
Investors have also to consider, that LLL is not alone, and has to deal with a lot of (hungry) competitors. One of them is L1 Identity Solutions (NYSE: ID). They also offer face recognition systems and software which should protect against counterfeit IDs, created from stolen identities.
Also in the market is FLIR Systems (Nasdaq: FLIR). This technology company focuses on authentication technologies. Such devices rely on sensor cameras, key cards and scanners to collect and verify data.
Other competitors in this market include American Science and Engineering (Nasdaq: ASEI) who produce X-Ray machines for security checks and OSI Systems (Nasdaq: OSIS), whose products check for explosives under clothes.
3. Cyber Security
You can also find a lot of companies which offer protection against cyber crime, for example against computer viruses transmitted via the Internet or hackers who manipulate your computer or steal your virtual identity. The leading provider in the market for the so called Cyber Security is VeriSign (Nasdaq: VRSN).
4. Hurt Locker
If you are searching for specialties in the security market you will also find iRobot (Nasdaq: IRBT). Their name alludes to the famous books by Isaac Asimov. This producer of cybernetic systems (robots) offers 2 product categories: Self-steered vacuum cleaners for households (the "Roomba Vacuum Cleaner") and military robots. These so called "Small Unmanned Ground Vehicles" are robotic machines, which detect and deactivate bombs and land minds. Cinema fans may know them from the Hollywood blockbuster "Hurt Locker".
While the household section is still waiting to be accepted by consumers (these robots are still expensive), the army sectors seem to prosper. The stock almost doubled in the last 12 months because the US Army is ordering more of the life saving robots.
5. Resume: No Chance without Risks
Global dangers and the permanent threat of terrorist strikes besides the variety of risks described in "Criminal Minds" generate a growing market for iRobot and many other security providers, especially when they use cutting edge technologies.
But be careful, no stock is without risk. We live in a imperfect universe, there is no such thing as perfect security. A stock price depends not just on economic development, which is favorable in the moment, Management must always react to competitors, who are trying to steal their market. Even in a growing market the danger exists that the management fails.
It may be helpful, even in the stock market, to be a bit paranoid.