SUREly ImPECSable
The worst terrorist attack in American history, the
outbreak of war in Afghanistan, the scourge of anthrax through the postal
system, and an unprecedented commitment to Homeland Security are all HUGE
macrowaves now washing over the markets.
These macrowaves have been a boon to everything from
defense stocks like Lockheed Martin
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like Bioreliance
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and airport security
firms like Viisage
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The question this week is how do you wade into these
sometimes highly risky waters, particularly after promising stocks have already
made their initial moves? Let’s
look for answers by looking at two particular stocks: Surebeam Corporation
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PECS provides technology services to the government
that range from building network infrastructures and developing web-enabled
architectures to applying authentication and encryption technologies. The macrowave PECS is now riding is the compelling need for law
enforcement agencies to better coordinate their databases in real-time as they
hunt for criminals and terrorists.
For example, the company
is now working on a project to continue the development and support of the
Department of Justice’s Joint Automated Booking System. This is an electronic information-sharing project among the DOJ’s five
law enforcement components. It
automates the criminal booking process and enables law enforcement organizations
to securely share and exchange information. It also provides rapid online
identification of criminals via the FBI’s automated fingerprint identification
system.
From a macrowave perspective, PECS is a macroplay
with good risk/reward characteristics. From
both a technical and fundamental point of view, PECS meets my criteria. The company stock just hit a six-week high and is approaching a 52-week
high. On balance, volume shows a
stock under accumulation, and the 10-, 21-, 50- and 200-day moving averages are
all stacked up nicely one upon another. Fundamentally,
the Investor’s Business Daily Power Tools rates PECS first in its
sector out of 85 stocks. (WEBX, by
the way, is now second.) (See chart from April, 2000 to October 2001.)
Now contrast this speculation with
a much more risky gambit — Surebeam Corp. This company is a subsidiary
of the Titan Corporation
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destroy harmful bacteria — including anthrax!
Prior to Sept. 11, Surebeam sold
its systems for use in such mundane applications as the sterilization of ground
beef — 40,000 pounds an hour, for example, at a Sioux City meat plant. But last Friday, Titan announced that the U.S. Post Office will purchase
eight of the systems for about $40 million with an option to buy 12 more.
As you can see in the chart from Sept. 17 to Oct. 26, SURE has been part rocket ship, part roller
coaster. One danger here is that
from a fundamental perspective, SURE is less than stellar. A more immediate danger is the stock’s extreme volatility.
In trading, timing is everything. I myself got in during the first wave of the
run-up in the chart. BUT I got stopped out of this stock on a deep plunge down just before it
took off on its second big run up.
I bailed with great reluctance. I had looked at the stock and was absolutely certain it was going to take
off based on the marriage of its technology and the “all anthrax, all of the
time†news coverage. Still, to
prudently manage my risk, I set a very large stop-loss to account for the
extreme volatility. I still got
stopped out.
When the stock jumped again after
its plunge — a 50% leap in one day — I knew one thing. I could not “shoulda, woulda, coulda†myself. What I had done was execute a good, but highly risky macroplay that
didn’t work out. I had minimized
my losses by adhering to sound capital and risk management and wound up missing
a very speedy boat.
Is SURE’s run over? I don’t think so — IF its technology proves to be effective and
cost-efficient. A very conservative
scale-in to SURE may be used to offset its high risk — say, an initial 1/8
position. A lower-risk alternative
to the SURE macroplay may be the Steris Corporation
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irradiation technology in its quiver.
LAST TAKE: WEBX continues to make
a very strong move on the basis of a sharp and likely permanent increase in the
demand for teleconferencing, even as Act Teleconferencing
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Both the face-recognition system company Viisage and the 3-D baggage
scanner Invision Technologies appear to be holding their own after sharp run-ups
in anticipation of increased airline security.
If you have a favorite macroplay
you would like me to feature in this column, send an e-mail to my web site https://www.peternavarro.com.
I’d love to hear from you.