Viewpoint / Security in stocks
By Sophie Shulman
Sun., April 18, 2004
Were you awed by that 68 percent pole-vault that battered ICTS International (Nasdaq: ICTS) shares posted? Were you impressed by the 12 percent climb by Verint Systems (Nasdaq: VRNT) last Monday? Lift your head from our little Israeli swamp for a moment and look around. The U.S. firm Mace Security International (Nasdaq: MACE) soared 162 percent that day and Digital Records (Nasdaq: TBUS) gained 63 percent.
Then there's one of the hottest stories around, a relative unknown called IPIX (Nasdaq: IPIX), which surged 43 percent on Monday, lifting its April gain to 400 percent. The Memphis-based firm developed a camera with a 360-degree field of view. Until now it's been used on the Internet, but it's become the dernier cri in security systems.
IPIX went public in 1999 as a dot.com, offering its camera for virtual tours of homes on sale and suchlike. It entered a contract with eBay, which could then present wares being auctioned from all angles. At its peak, IPIX was worth $2.7 billion, but when the bubble burst its valuation sank to $50 million.
Now watch this
The company smelled the wind and relaunched its smart cameras, this time as surveillance applications. Its face-lift was a stunning success, at least on Wall Street. The company, which made just $29 million sales in 2003, is now traded at a market cap of $200 million.
This isn't about IPIX, it's about security companies that have become all the rage, again, after their first huge spike following the Sept. 11, 2001, terror in the United States. From the start of March the index of the hottest 13 homeland security shares has risen 30 percent, while the rest of the market remained pretty flat.
Some call it a latter-day gold rush, others are sounding the bubble alert. Is it? Or is there pay dirt under the slung mud? Put otherwise, can the companies justify these gains by their shares?
The spike started a month ago, when GE announced the acquisition of InVision (Nasdaq: INVN) for $900 million cash, which was 30 percent above its market value. InVision develops technology to recognize and locate explosives. Since 9/11, InVision shares have climbed 1,500 percent, after Congress forced all American airports to install bomb detection technology to check all cargo.
The opening shot
The rush also lifted Israel's Magal Security Systems (Nasdaq: MAGS), a provider of mainly perimeter security systems. Its share tripled, rising 300 percent to $38.
GE's timing was sublimely lucky, coming a mere few days before the Madrid attacks on March 11, 2004. The horror reminded people of the need for security systems and also intelligence. And then came the testimonials about September 11 itself, whether Washington had adequate intelligence and what it did about it.
As if that weren't enough to bolster security stocks, the Iraqi front has been exploding. That alone did nice things for another Israeli defense stock, Arotech Corporation (Nasdaq: ARTX), which announced its vehicle-armoring subsidiary MDT won new orders of more than $3.1 million to plate vehicles going to Iraq. Its stock promptly doubled.
X-ray that man
Despite all the reasons to stampede for security stocks, U.S. analysts are skeptical about future reward, and doubt the gains will be justified when push comes to shove.
Defense or security stocks cover a wide range, from companies that forge guns to companies that provide surveillance equipment for airports like ICTS, to companies making technology to identify people via the fingerprints or retina or systems that identify traces of biological or chemical weapons.
Thing is, even the September 11 events did not substantially lift revenues at the big companies. Even smaller companies typically offering more innovative wares admit their sunny expectations of fast growth did not materialize.
For one thing, a lot of ostensibly perfect solutions for governmental enforcement agencies have a pesky problem of compromising privacy. Take the x-ray system that is supposed to see plastic and ceramic guns, which a regular x-ray machine would miss. The system unfortunately also pitilessly exposes the precise body lines of the imaged person, down to the last intimate detail. Analysts had thought the machines, which sell for $50,000 to twice that each, would be installed at each and every airport. They were not.
haaretz.com
steve |
