Como se combate o populismo? "Com eleições", responde Fukuyama

[Alfred E. Neuman]

Kenneth Reid, editor of Spear's Security Industry Analyst recommends buying shares of OSI Systems (OSIS), the Hawthorne, Calif. maker of security and inspection systems, as well as medical imaging and opto-electronic devices. OSI is the market leader in walk through scanning systems at airports; its products are also used to screen baggage and cargo. Sales totaled $247 million for the fiscal year ended June 30, 2004, up 35.3% from 2003. Earnings, however, decreased 37% due to sharply higher selling, general and administrative expenses and a near doubling of research and development costs. OSI shares are up 14% in the last year and 45% higher than their August 30 one-year low of $14.41. Based on Friday's close of $20.91, OSI trades for 28.3 times expected 2005 earnings per share of $0.74; 1.15 times book value; and 1.49 times sales. The company's market capitalization is $340 million.

Reid analyzes security and homeland defense stocks from both a technical and fundamental perspective, and says he likes what he sees in OSI: "a profitable, diversified homeland security play with the best explosive detection technology for large cargo screening." Reid also likes the diversified income stream from government and private industry. Homeland security sales currently account for 48% of revenue, while medical imaging and monitoring bring in 24%, and other applications like photo sensors for industry and laser systems for the military account for 28% of business. OSI's sophisticated dual-energy X-ray technology discriminates contraband (explosives, currency, drugs) in luggage, while their thermal neutron analysis does the same for bulk cargo in shipping containers and large trucks, without the need to de-crate. In its medical division, the company makes systems to gauge bone density and perform a host of patient monitoring functions.

OSI dropped 20% in price when it announced year-end earnings on August 26, and lowered its outlook for sales and profits in the September quarter. In late October, when that quarter's results were announced, showing a 127% jump in revenue (though only a 2% rise in earnings) from the year before, the stock gained 25% in the following week. Still, observes, Reid, there is a substantial short interest in the stock (15% of float in October) which tends to add fuel to a stock's gains when shorts have to cover their position by buying shares.

If OSI Shares fail to appreciate significantly on their own, Reid notes that the company, with its low price-to-earnings, sales, and book value, would make an attractive takeover target. OSI has $1.52 in cash per share on its books and very little debt.

The investment above is recommended in Spear's Security Industry Analyst.