Sunday, September 11, 2011

Investing: A Post 9/11 Portfolio II

2. Intelligent Defense

The 9/11 trauma also created a huge demand for defense, meaning military devices to be used abroad and at home. But a lot of these perspectives are already priced in the values of the stocks. And the defense industry depends heavily on politics and could suffer when the government is forced to cut expenses further.

However, there could be some specialities which prosper even in a shrinking market. I`m thinking about companies which produce "intelligent" products, for example devices "which strike the bad guy without endangering our people". These companies could benefit from the modernization and automation in the military.

This company looks interesting: AeroVironment (Nasdaq: AVAV ). They design, develop, produce and support unmanned aircraft sytems, so called drones (also called remotely piloted aircrafts). These devices were used for example in strikes against suspected al-Qaeda terrorists. Orders for their drone aircraft might even grow when the demand for traditional military craft declines.

AeroVironment has fascinating products in their research pipeline. For example the first robotic hummingbird, that is a very small technical device, equipped with a camera, which can almost fly like a real humming bird.

But AeroVironment isn`t a pure play. This high-tech company also produces things like charging systems for electric vehicles. And there are other companies, like Lockheed Martin, which also offers drones.

There is another company which caught my eyes: iRobot (Nasdaq: IRBT They lend their name from a science fiction book by Isaac Asimov. The company produces cybernetic systems (robots) for 2 different markets: households (devices like the self-steered vacuum cleaners, called the "Roomba Vacuum Cleaner") and military.

While the household section is slowly accepted by consumers (these robots are still expensive), the army sector seems to prosper. iRobot produces so called "Small Unmanned Ground Vehicles". These are robotic machines, which detect and deactivate bombs and land minds. It`s a no-brainer that the U.S. army orders more & more of these life-saving devices, especially when the robots become more advanced because of the rapid technical progress. But in this market are also a lot of competitors, like Northrop Grumman Corp., and the british Cobham PLC,  who want a slice of the growing cake.

Conclusion: Even investments in security aren`t secure. No investment and no stock is without risk. The stock price depends not just on the economic development, which is fragile in the moment, the 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.
Take care.

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