Bullet-Proof Potential

11/19/2004 12:00 am EST

Focus:

Stocks involved in homeland security and military support continue to garner interest among leading advisors. Jocelynn Drake, Vahan Janjigian, Paul Tracy, and Ian Wyatt all see an opportunity in body armor manufacturer, DHB Industries.

(for more on the advisors cited below, please click on their photos.)

Janjigian, Vahan"DHB Industries (DHB ASE) specializes in selling body armor to the military and other federal and state agencies," notes Vahan Janjigian, editor of The Forbes Growth Investor. "Its concealable armor is worn beneath clothing and is resistant to smaller caliber bullets. Its tactical armor is worn over clothing and protects against larger projectiles. DHB also makes protective vests for dogs. There are risks with this stock. Although the war on terror and hostilities in Iraq are likely to keep demand strong for DHB’s protective armor, possible changes in scale and scope of the military budget always pose a risk. Further, DHB faces stiff competition. In addition, we note that the SEC is currently investigating issues relating to executive compensation, although at this time, we do not expect this investigation to have a significant impact. We are more focused on the fact that near-term prospects are exceptionally strong. The company is expanding manufacturing operations, it keeps winning major contract awards, and analysts keep raising earnings expectations."

Tracy, Paul"In October alone, orders for the DHB's new line of body armor topped $75 million," says Paul Tracy, editor of StreetAuthority Market Advisor. "This new line, dubbed Dorsal Auxiliary Protection System (DAPS), is designed to protect the underarm and shoulders, areas that are often left unprotected by most conventional body armor vests. The DAPS system received the largest contract ever awarded for body armor, a near $300 million order from the US Army. And it's not just the military that's buying. DHB also supplies armor to domestic law enforcement agencies like the California Highway Patrol and the FBI. When the company reported second-quarter earnings back in early August, its backlog stood at nearly $400 million. We expect that the backlog is now almost equal to DHB's entire market cap of a little over $600 million. The stock is one of our favorites in the defense sector."

Wyatt, Ian"DHB Industries recently reported third quarter financial results that were marked by a 64% increase in revenues," notes Ian Wyatt, editor of The Growth Stock Report. "The company earned $8 million or $0.18 per share, on sales of $89.4 million, exceeding consensus estimates. Earnings for the quarter grew 157%. The company also raised guidance for 2004, and is now expecting revenues of $330 million, up from its earlier estimate of $300 million. About 40% of the company's backlog is for non-military customers. This marks a significant improvement in the company's diversification of clientele. We are pleased with these results and feel that the company continues to move in the right direction. The additional orders are impressive to say the least and speak toward DHB's continued dominance of the body armor market. We maintain our Buy rating."

Drake, Jocelynn"Technically, DHB shares have rallied along the support of their 10-week and 20-week moving average since January 2003 and are now trading at a new all-time high," says Jocelyn Drake, analyst with Schaeffer's Investment Research. "The equity has also enjoyed the support of its 10-month moving average since April 2003. Despite the security's stellar technical performance, the shares continue to hover below the Street's radar. Only two analysts currently follow the shares and any additional coverage could add some lift to the stock price. Short sellers are starting to capitulate, as the number of DHB shares sold short dropped by 8% in October to 4.1 million shares. However, this accumulation of bearish bets still accounts for more than 17% of the security's float. An unwinding of these pessimistic positions could also add some fuel to the security's rally. This enticing combination of lingering skepticism against the stock's growing technical strength has bullish implications from a contrarian perspective."

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