Universal Guardian Holdings (fka UGHO)

[skywalkin]

Security Stocks are the Next Growth Stocks

I think they forgot where Taser started, on the OTC

They should add these to their list, UGHO & HSTJ - Sky

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http://www.forbes.com/investmentnewsletters/2004/09/17/cz_kr_0917soapbox.html?partner=yahoo&refe....





Adviser Soapbox
Don't Fall For Taser Wannabes
Kenneth Reid, Spear's Security Industry Analyst, 09.17.04, 2:05 PM ET

It is a truism that markets run on fear and greed, but according to Mark Douglas, author of Trading in the Zone, greed is simply a disguised version of another fear, the fear of missing out.

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So, naturally, when we witness the periodic mini-manias in micro-cap homeland-security stocks such as MACE (nasdaq: MACE - news - people ) and Digital Recorders (nasdaq: TBUS - news - people )--both of which were up substantially this week--it may create a painful fantasy about missing out on the next Taser, and lead, perhaps, to some impulsive, but ill-advised stock purchases to medicate that pain. Sadly, two wrongs won't make it right.

It usually takes a real news catalyst to spark the speculative fire in secondary homeland-security companies, however, the announcement by Taser (nasdaq: TASR - news - people ) on Wednesday of a retail version of its non-lethal personal protection device--"Citizen Defense System"--and the subsequent unexpected authorization by British Home Secretary David Blunkett of the TASER M26 for use by police forces throughout England and Wales fit the bill.

The latter development was a nasty surprise for those who love to hate this stock (79% of the 19 million-share float is sold short), particularly after Taser president and co-founder Thomas Smith downplayed the possibility of major third-quarter international orders at the Morgan Keegan Equity Conference last week. This piece of good news caused an intraday trading halt and more electrifying drama for the shares of the $1 billion market cap company.

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Professional traders, however, seek an edge away from the headlines and rarely buy the news. Instead, if the story is compelling, they look for proxies--direct or indirect. That's when the secondary security names can skyrocket, particularly if the float (shares available to trade) is small, market makers are few, and momentum day traders with 4-times margin get on board for their daily dose of adrenaline.

With no intention to disparage particular companies, one indispensable key to a good long-term investment is institutional sponsorship---the "I" in Bill O'Neil's CANSLIM method. Together, MACE and Digital Recorders appear to have less than 500,000 shares held by institutions, hardly a sign of long-term commitment by professional investors. MACE, which is touting its security cameras, still gets 90% of its cash flow from declining car wash operations and Digital Recorders, which is promoting its new vehicle tracking equipment, recently reported soft quarterly revenue and continuing quarterly and annual losses.

So far this year, like Icarus of Greek mythology, all of the secondary security plays have levitated briefly only to fall back into the quiescent sea of anonymity. It is doubtful that this time it will be any different. The holders of bid-up shares are renting a ride, not owning a company. A buy-and-hold attitude at this altitude will leave you holding the bag. If you seek short-term excitement in trading, these names can provide it. If you seek investment-grade companies in homeland security, look elsewhere.


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For smart surveillance on the new frontier, consider Verint (nasdaq: VRNT - news - people ), which on Wednesday reported $60 million in quarterly sales, up 28% year-over-year. The company specializes in video equipment that captures and analyzes images according to specific behavioral criteria. This week, Verint announced the acquisition of RP Security, a privately held German firm whose technology has been developed specifically for the transportation security market. Verint has a small enough float (5.7 million) to spark momentum if share demand increases, 38% institutional ownership, which is enough to lend some price stability, and a sufficient base of installed customers--more than 1,000 both corporate and government in 50 countries--to drive recurring revenue and new product interest.

By the way, we still like Taser, despite its high valuation, and recommend a "buy" on a pullback to the $35 area. The company owns its niche, which we believe will eventually become a compelling worldwide franchise, but it is not stopping there. They are developing, with General Dynamics (nyse: GD - news - people ), wireless, piezoelectric taser-like bullets, which we suspect will be a hot item in the brave new world of global homeland insecurity. In short, the next Taser is still Taser.

Kenneth Reid maintains no long or short positions in any of the stocks mentioned above.

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