ShareThisBy KATHLEEN PENDER
Monday, October 23, 2006
Shortly after the World Trade Center disaster and the subsequent anthrax scare, speculators started pouring money into companies that might benefit from the war on terror.
In late 2001, I wrote several columns about these stocks, saying that if you wanted to start a terror-age mutual fund, they'd be a good place to start.
Five years later, only a few of the 21 companies I identified back then have benefited directly from the war on terror, although many of their stocks have held up.
Since Sept. 10, 2001, these stocks are up an average 220 percent, including dividends.
During the same period, the Standard & Poor's 500 index posted a cumulative total return of only 29.8 percent.
Most of the big run-up in terror stocks came in the weeks and months following the attacks. Since Dec. 31, 2001, their average return is just 40 percent. That's much closer to, but still higher than the S&P 500, which was up 23 percent during this period.
A big chunk of that outperformance came from InVision Technologies, which makes bomb-detection equipment for checked luggage. Although the World Trade Center terrorists used hand-carried box cutters, the attacks created a surge in demand for InVision's equipment from airports worldwide.
General Electric bought InVision in December 2004. Had you bought InVision stock on Sept. 10, 2001, and sold it to GE, you would have earned more than 1,500 percent.
L-3 Communications, InVision's main competitor, has also done well since the attacks, although bomb detection makes up a small part of its business. Its stock is up 145.8 percent since the day before the attacks and up 72 percent since the end of 2001. L-3 supplies a wide range of products and services for defense and aerospace.
Another investing theme in late 2001 was biometrics. A handful of companies that make facial- and fingerprint-recognition equipment and software saw their stocks soar.
But privacy concerns have prevented these companies from living up to expectations.
Visionics, which specialized in facial and fingerprint systems, merged with rival Identix in 2002. In August, Identix merged with Viisage Technology and the company changed its name to L-1 Identity Solutions.
"Biometrics is a market that hasn't really developed. We haven't seen the kind of growth we might have imagined five years ago. That's why you've seen these mergers, to get economies of scale and achieve profitability," says Timothy Quillin, an analyst with Stephens Inc.
Also seeking a new identity was Drexler Technology, which has been trying for years to sell its optical identity cards to governments around the world. The cards are used most notably for border crossings. They are tamper-resistant and can hold a ton of information.
In late 2004 it changed its corporate name to LaserCard, the name of its product.
"It's a company that hasn't really grown the way people might have thought," says Quillin. "With biometrics there are technical and social issues to overcome. The accuracy is getting better but the privacy issues are still a question mark."
The quick end to the anthrax scare put an end to speculation in companies that made products and services for detecting and combatting bioterrorism.
The worst-performing stock in my terrorism universe was Nanogen, but its 60 percent drop since September 2001 had little to do with anthrax.
The company sells equipment and chemicals used to develop tests for genetic diseases or to detect infectious agents. It never marketed products specifically for biodefense, although a customer could buy its instruments and develop their own tests. It was that sort of speculation that gave the company a brief spike after the anthrax scare.
The nation's major defense contractors have fared well since 2001, but "there was already a pickup in defense spending before 9/11," Quillin says. "Clearly, there has been additional incremental spending on the war in Iraq. But spending 5 to 10 billion dollars a month in Iraq takes away from spending on long-term weapons defense systems. They may have done just as well if there hadn't been terrorist attacks."
One of the more successful companies has been Armor Holdings, which is up 271 percent over the past five years.
Before the attacks, the smallish company sold body armor, mostly to law enforcement agencies. Since then, "it has morphed (largely by acquisition) into an aerospace and defense company," Quillin says. It makes armored trucks and vehicles for the military and now has revenue of about $3 billion.
Terrorism "is not an area that lends itself well to thematic investing," Quillin says. "You have to follow specific opportunities."
(E-mail Kathleen Pender at kpender(at)fchronicle.com.
