Despite the claims of many Wall Street pundits that the United States economy was great in 2005, the stock market was basically a dud.
With the market petering out as the year came to a close, the high profile Dow Jones Index fell into the red — registering a razor-thin 0.6-percent loss for the year. The S&P 500 came in at a mediocre 3 percent, while the NASDAQ Composite eked out a paltry 1.4 percent. Even the formerly dynamic small-cap Russell 2000, which soared by 17 percent in 2004, struggled to gain 3.3 percent for the year.
While U.S. markets were limping along, there was real bounce in the international stock markets and generally stronger performance for the foreign-based security companies traded abroad.
The Mallon Global Security Stock Index — which consists of 220 separate public security companies (or companies with significant security subsidiaries or divisions) on stock exchanges around the world — rose 2 percent for 2005. To be included in the listing, the public companies must be trading at more than $1 a share. (A breakout of the stock performances in 18 separate security sectors appears in the February issue of SSI).
With this lackluster backdrop, the security industry nonetheless showed some solid stock appreciation.
The top 10 list of high performing security stock companies is made up of a diverse mix of industry sectors — not dominated as in the past by computer/Internet security, high-flying biometric companies, stun-gun makers or other security product manufacturers. Among the top performers for 2005 were companies in the following sectors: alarms; biometrics (two companies); identification/authentication (two); auto recovery and tracking (two); security product manufacturing; fire protection; and video surveillance. In other words, it was a mixed bag.
Only two companies had market caps in excess of $1 billion but were not large enough to be classified as large cap, while eight were typical small- and micro-cap security companies.
Guardian Tops 2005’s List of Hot Security Stocks
Tiny Florida-based alarm company Guardian Int’l registered a whopping 400-percent gain for its stock and ranked No. 1 for the year when its stock price surged after a $66 million acquisition bid by Devcon Int’l. The price tag included the assumption of the company’s debt of approximately $13.5 million.
On Jan. 1, 2005, the alarm company’s shares were trading over-the-counter (OTC) at a paltry 35 cents a share, and surged to $1.75 after the announcement of the proposed purchase.
Guardian also has a high-end, commercially oriented electronic security installation and monitoring operation in New York. It had annual sales of approximately $23 million and recurring monthly revenues of about $1.2 million.
Coming in at No. 2 was Sirf Technology, which tracks mobile assets through global positioning systems (GPS). Its stock was trading at $12.72 per share at the beginning of the year and finished at $29.79 for an annual appreciation of 134 percent.
The San Jose, Calif.-based company also offers software products, such as SiRFLoc for wireless devices that provide location information and SiRFXTrac for high sensitivity satellite tracking.
Its net income for the third quarter more than tripled to $1.5 million, or 9 cents per share, from $481,000, or 3 cents per share, in the comparable quarter of 2004. Quarterly revenue soared 36 percent to $16 million, up from $11.8 million.
Iris Int’l, which manufactures urinalysis systems and semi-automated DNA processing workstations, was No. 3 on the winners’ list with a stock gain of 125 percent for the year. The stock of the California-based company went from $9.74 on Jan. 1, 2005 to $21.87 at year’s end.
Earlier this year, the company was awarded a $2 million grant from the National Institute of Standards and Technology (NIST), a unit of the U.S. Department of Commerce, for the development of biometric 3D facial recognition for security screening. The grant calls for the testing of an experimental automated personal identification system for airports, ports of entry, defense installations and other sensitive sites where security requires screening of individuals
In the No. 4 position was Smith & Wesson, the Springfield, Mass., gun manufacturer, whose stock surged 124 percent during 2005. It commenced the year on AMEX with its stock trading at $1.74 a share and finished at $3.90.
The company not only manufactures handguns but also firearm safety/security products, knives, apparel, footwear and other accessory lines. It also operates a firearms training facility for law enforcement officers. The legendary company was founded in 1852.
Ranked No. 5 for the year was the high-profile auto recovery company LoJack, which racked up double-digit sales and profitability growth during the year. It kicked off 2005 at $12.09 a share and finished strong at $24.20 for an appreciation of 100 percent.
LoJack, NICE Help Round Out Top 10
LoJack, formed in 1978 and based in Westward, Mass., offers wireless tracking and recovery products for mobile assets worldwide. The system is designed to assist law enforcement in locating, tracking and recovering stolen vehicles. The company also offers the LoJack Early Warning Recovery System, which notifies auto owners of unauthorized use of their vehicles. American Bank Note Holographics (ABNH), a manufacturer of holograms used primarily for security purposes, was listed at No. 6 with a stock gain of 97 percent for the year. The New Jersey-based firm was trading at $3.15 on Jan. 1, 2005 and finished the year at $6.20.
ABNH holograms are sold as counterfeiting protection for credit and other transaction cards, and for general ID cards and valuable documents.
In the No. 7 position, with a stock gain of 82 percent, was Nuance Communications, a biometrics and identification company utilizing speech technologies. The stock of Nuance rose from $4.19 a share to $7.63.
In the No. 8 position was Rural Metro, which provides medical transportation and fire protection services to municipal and commercial customers. Its stock rose from $4.98 to $9.03 for a gain of 81 percent.
The stock of FirstService, a Canadian property and business service company with a significant security systems integration business throughout North America, gained a solid 57 percent for the year — finishing at $25.60 per share on NASDAQ. It was ranked No. 9 in the security stock performance listings.
Headed by founder and CEO Jay Hennick, this enterprise recorded results for its second quarter ended Sept. 30 with sales up 75 percent to $316.1 million from $180.7 million generated in the prior year’s comparable quarter. Net earnings jumped to $13.8 million from $9.5 million.
NICE, an Israel-based video surveillance company, came in at No. 10 with its stock up 54 percent for the year. It began 2005 with its stock on NASDAQ trading at $31.26 per share and finished the year at $48.09.
In December, the company had an American Depository Shares offering of four million shares, priced at $46.25 and netting approximately $200 million. It had a record third quarter, with sales hitting $82.7 million (up 30 percent from $63.5 million generated in its third quarter of 2004).
Security industry investors were disappointed in 2005 in the formerly explosive computer/Internet security sector. RSA Security, Verisign and Symantec were big losers for the year with their stocks declining by 44 percent, 35 percent and 32 percent, respectively. Investors were also dismayed about a former high-flying favorite, stun-gun manufacturer Taser, which declined by 78 percent for t
he year.
Jack Mallon is managing director of Mallon Associates, a New York-based investment bank exclusively engaged in structuring mergers and acquisitions, raising capital and providing investment banking services for public and private companies in the security industry.Mallon is also editor and publisher of Mallon’s Security Report, a quarterly financial newsletter reporting on developments in the security industry and tracking 250 public security companies listed on stock exchanges around the world. To reach Mallon, E-mail [email protected] or visit www.mallonassociates.com.
