Thursday, January 27, 2011

Security Stocks; Visualant (OTCBB:VSUL) to Acquire Eagle Technologies USA

Seattle, WA - January 27, 2011 (Investorideas.com Defense Newswire) - Visualant, Inc. (OTCBB: VSUL), an emerging leader in authentication systems technology, announced today that is has signed a letter of intent to Eagle Technologies USA (www.eagletechnologiesusa.com) of Brea, California.
Eagle, founded by card industry leaders Greg and Ryan Hawkins and Jeff Fulmer in 2008 has rapidly emerged as the premier provider of blank PVC and polyester composite cards to the identification market. Eagle will provide an immediate additional $1 million in annual revenue to Visualant and is projected to grow to $3 to $4 million in revenues over the next two years as Eagle increases the range and technical sophistication of its product line.
With this acquisition, Visualant will continue with its strategic initiative to consolidate relevant security and authentication assets. At the same time, Visualant will provide Eagle and its management the human and capital resources necessary to rapidly accelerate its growth. Upon the closing of this acquisition, the Eagle team will continue to manage Eagle with full profit and loss responsibility.
Greg Hawkins, Eagle Co-founder and President said, "We are excited to become a part of the Visualant family of companies and work with them to accelerate our penetration of the marketplace with the Eagle product line."
Jim Gingo, security industry leader and Visualant board member stated, "We have worked with Eagle and its management team for several years. They are first class professionals. We are very pleased to have them join with us as we provide an even broader range of security and authentication products to our dealers and customers."
Ron Erickson, Visualant CEO said, "We are thrilled to be able to bring Eagle and its wonderful entrepreneurs into Visualant. With this acquisition, Visualant continues to execute on its acquisition strategy and build its power in the security and authentication marketplace."
About Visualant, Inc.
Visualant, Inc. develops low-cost, high speed, light-based security and quality control solutions for use in homeland security, anti-counterfeiting, forgery/fraud prevention, brand protection and process control applications. Its patent-pending technology uses controlled illumination with specific bands of light, to establish a unique spectral signature for both individual and classes of items. When matched against existing databases, these spectral signatures allow precise identification and authentication of any item or substance. This breakthrough optical sensing and data capture technology is called Spectral Pattern Matching (SPM). SPM technology can be miniaturized and is easily integrated into a variety of hand-held or fixed mount configurations, and can be combined in the same package as a bar-code or biometric scanner.
Through its wholly owned subsidiary, TransTech Systems, Inc., the Company provides security and authentication solutions to security and law enforcement markets throughout the United States.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements (within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934) regarding us and our business, financial condition, results of operations and prospects. Forward-looking statements in this press release reflect the good faith judgment of our management and are based on facts and factors currently known to us. Forward-looking statements are subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements as a result of either the matters set forth or incorporated in this press release generally or certain economic and business factors, some of which may be unknown to and/or beyond the control of Visualant, Inc.. Specifically, we are exposed to various risks related to our revenue projections, our need for additional financing to support our technology development, acquiring or investing in new businesses and ongoing operations, the sale of a significant number of our shares of common stock could depress the price of our common stock, the market price of our common stock may be volatile, and we may incur losses in the future. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We do not undertake, and we expressly disclaim, any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of the press release.
Contact:
Visualant, Inc.:
Lynn Felsinger
206 903 1351
Lynn@visualant.net
Investor Relations
Paul DeRiso
Core Consulting Group
925-465-6088
paul@coreconsultingroup.com
Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs
Visit the showcase page: http://www.investorideas.com/CO/VSUL/
Disclaimer: Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs. Starting Nov 24th, 3 months (4000 per month by third party)

Wednesday, January 26, 2011

Security Stocks; TransTech Systems, a Subsidiary of Visualant (OTCBB:VSUL), to Exhibit at Macworld 2011 Conference & Expo in San Francisco, CA

Seattle, WA - January 26, 2011 (Investorideas.com Defense Newswire) - Visualant, Inc. (OTCBB: VSUL), a pioneer provider of industry-leading color based identification and diagnostic solutions, an emerging leader in security and authentication systems technology and distributor of a wide variety of security solutions through its wholly-owned subsidiary, TransTech Systems, Inc., is pleased to announce that TransTech Systems will be exhibiting at the Macworld 2011 Conference and Expo from January 27-29, 2011 at the Moscone Center in San Francisco, CA.
Macworld, an IDG World Expo Event, is the largest affair to focus solely on the promotion of Apple products. In addition to the exposition, Macworld also offers focused conference programs to include workshops for in depth training, MacIT classes for technical training, and user sessions for skill enhancement opportunities. This year's Macworld has over 30,000 attendees registered for the expo. MacWorld for further details.
TransTech Systems (www.ttsys.com) will be exhibiting the latest in Mac-compatible identification card printing and encoding systems from Evolis. As a leading manufacturer of Mac-compatible identification printers, Evolis is a favorite among education and other Mac-friendly environments around the world. See these and other popular security industry products on display in TransTech's booth #1035.
About Visualant, Inc.
Visualant, Inc. develops low-cost, high speed, light-based security and quality control solutions for use in homeland security, anti-counterfeiting, forgery/fraud prevention, brand protection and process control applications. Its patent-pending technology uses controlled illumination with specific bands of light, to establish a unique spectral signature for both individual and classes of items. When matched against existing databases, these spectral signatures allow precise identification and authentication of any item or substance. This breakthrough optical sensing and data capture technology is called Spectral Pattern Matching (SPM). SPM technology can be miniaturized and is easily integrated into a variety of hand-held or fixed mount configurations, and can be combined in the same package as a bar-code or biometric scanner.
Through its wholly owned subsidiary, TransTech Systems, Inc., the Company provides security and authentication solutions to security and law enforcement markets throughout the United States.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements (within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934) regarding us and our business, financial condition, results of operations and prospects. Forward-looking statements in this press release reflect the good faith judgment of our management and are based on facts and factors currently known to us. Forward-looking statements are subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements as a result of either the matters set forth or incorporated in this press release generally or certain economic and business factors, some of which may be unknown to and/or beyond the control of Visualant, Inc.. Specifically, we are exposed to various risks related to our revenue projections, our need for additional financing to support our technology development, acquiring or investing in new businesses and ongoing operations, the sale of a significant number of our shares of common stock could depress the price of our common stock, the market price of our common stock may be volatile, and we may incur losses in the future. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We do not undertake, and we expressly disclaim, any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of the press release.
Contact:
Visualant, Inc.:
Lynn Felsinger
206 903 1351
Lynn@visualant.net
Investor Relations
Paul DeRiso
Core Consulting Group
925-465-6088
paul@coreconsultingroup.com
Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs
Visit the showcase page: http://www.investorideas.com/CO/VSUL/
Disclaimer: Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs. Starting Nov 24th, 3 months (4000 per month by third party)

Monday, January 24, 2011

Security Stocks; Visualant (OTCBB:VSUL) Announces NBT Equity Group Research Report by Tobin Smith

Seattle, WA - January 24, 2011 (Investorideas.com Defense Newswire) - Visualant, Inc. (OTCBB: VSUL), a pioneer provider of industry-leading color based identification and diagnostic solutions, an emerging leader in security and authentication systems technology and distributor of a wide variety of security solutions through its wholly-owned subsidiary, TransTech Systems, Inc., announced today that NBT Equity Research LLC has released a research report on the Company. The full research report can be accessed through the Visualant website at www.visualant.net.
NBT Equity Research LLC is a member of the NBT Equity Group LLC. They were founded by well known research analyst Tobin Smith. Tobin Smith is a contributing market analyst for Fox News Channel and a regular panelist on its highly rated "Bulls & Bears" weekly investment program.
About Visualant, Inc.
Visualant, Inc. develops low-cost, high speed, light-based security and quality control solutions for use in homeland security, anti-counterfeiting, forgery/fraud prevention, brand protection and process control applications. Its patent-pending technology uses controlled illumination with specific bands of light, to establish a unique spectral signature for both individual and classes of items. When matched against existing databases, these spectral signatures allow precise identification and authentication of any item or substance. This breakthrough optical sensing and data capture technology is called Spectral Pattern Matching (SPM). SPM technology can be miniaturized and is easily integrated into a variety of hand-held or fixed mount configurations, and can be combined in the same package as a bar-code or biometric scanner.
Through its wholly owned subsidiary, TransTech Systems, Inc., the Company provides security and authentication solutions to security and law enforcement markets throughout the United States.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements (within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934) regarding us and our business, financial condition, results of operations and prospects. Forward-looking statements in this press release reflect the good faith judgment of our management and are based on facts and factors currently known to us. Forward-looking statements are subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements as a result of either the matters set forth or incorporated in this press release generally or certain economic and business factors, some of which may be unknown to and/or beyond the control of Visualant, Inc.. Specifically, we are exposed to various risks related to our revenue projections, our need for additional financing to support our technology development, acquiring or investing in new businesses and ongoing operations, the sale of a significant number of our shares of common stock could depress the price of our common stock, the market price of our common stock may be volatile, and we may incur losses in the future. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We do not undertake, and we expressly disclaim, any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of the press release.
Contact:
Visualant, Inc.:
Lynn Felsinger
206 903 1351
Lynn@visualant.net
Investor Relations
Paul DeRiso
Core Consulting Group
925-465-6088
paul@coreconsultingroup.com
Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs
Visit the showcase page: http://www.investorideas.com/CO/VSUL/
Disclaimer: Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs. Starting Nov 24th, 3 months (4000 per month by third party)

Monday, January 10, 2011

Q&A Interview with CEO of Visualant Inc. (OTCBB: VSUL) Applications and Licensing Opportunities for Authentication Technology

Seattle, WA - January 10, 2011 - Investorideas.com, an investor research portal specializing in sector research, presents a Q&A interview featuring Mr. Ronald Erickson, CEO, President and Chairman of the Board of Visualant, Inc. (OTCBB:VSUL). Mr. Erickson discusses the bigger picture and the broad range of applications and licensing opportunities for its authentication /signature technology.
Interview:
Q: Investorideas.com
Ron, first of all can you explain to investors the basis of your patent pending technology so they can begin to understand the possibility of expanding into new industry sectors?
A: Ronald Erickson, CEO, President and Chairman of the Board
Q: Investorideas.com
The primary focus for your technology is security and defense but other key sectors include environmental, agricultural and medical. Can you give us some examples of how that can be implemented and also what are the prospects for each of these sectors? There is a lot of buzz around the agricultural sector for example – do you see that as a big opportunity for the company?
A: Ronald Erickson, CEO, President and Chairman of the Board
You and I make many judgments based upon our human perception of color. We go into our garden and say, “That plant looks ready to eat, that plant looks like it needs water, or that plant looks sick.” In essence, our SPM technology can do that same thing, remotely. We are looking at a number of unique applications in the agricultural arena.
Q: Investorideas.com
You just announced this week that the Company has entered into a license agreement with Seattle-based Javelin LLC ("Javelin") for development of environmental diagnostic applications of its Spectral Pattern Matching ("SPM") technology. Can you give investors more detail as to what this lays the foundation for?
A: Ronald Erickson, CEO, President and Chairman of the Board
In many ways, the license with Javelin, for environmental applications of SPM, is a template for use with many other licenses we hope to secure. We want third parties to explore ways of exploiting SPM technology. The more smart people we have working on deploying our technology the greater the opportunity for Visualant to be the success we believe it can be. A typical license will include a market rate royalty on gross revenues, along with certain negotiated equity and participatory interests for Visualant in the company who licenses our technology.
Q: Investorideas.com
In the overall business model, how do you see the roll out of licensing over the next two to five years?
A: Ronald Erickson, CEO, President and Chairman of the Board
To use the vernacular, licensing could become the tail that wags the dog In other words, licensing revenues are typically high margin, and it will have a more dramatic impact upon our bottom line than lower margin business units.
Q: Investorideas.com
In closing, what is in the pipeline that you can discuss publicly within your primary sector, security and defense?
A: Ronald Erickson, CEO, President and Chairman of the Board
I like to call our primary sector or focus, security and authentication. As we have indicated previously, we are looking at additional acquisition opportunities to expand upon the approximately $10 million of annual revenues we obtained with our TransTech security and authentication distribution acquisition. These include both smaller “tuck in” deals to expand TransTech and larger deals to expand TransTech geographic reach. We are also looking at some early SPM product opportunities in this sector.
About Visualant, Inc. (OTCBB: VSUL)
Visualant, Inc. develops low-cost, high speed, light-based security and quality control solutions for use in homeland security, anti-counterfeiting, forgery/fraud prevention, brand protection and process control applications. Its patent-pending technology uses controlled illumination with specific bands of light, to establish a unique spectral signature for both individual and classes of items. When matched against existing databases, these spectral signatures allow precise identification and authentication of any item or substance. This breakthrough optical sensing and data capture technology is called Spectral Pattern Matching (SPM). SPM technology can be miniaturized and is easily integrated into a variety of hand-held or fixed mount configurations, and can be combined in the same package as a bar-code or biometric scanner. www.visulant.net
Through its wholly owned subsidiary, TransTech Systems, Inc., the Company provides security and authentication solutions to security and law enforcement markets throughout the United States. www.ttsys.com
Contact:
Visualant, Inc.:
Lynn Felsinger
206 903 1351
Lynn@visualant.net
Investor Relations
Paul DeRiso
Core Consulting Group
925-465-6088
paul@coreconsultingroup.com
Visit the company profile on Investorideas.com
http://www.investorideas.com/CO/VSUL/
Disclaimer:
This news is paid for as part of the showcase advertising program for Visualant, Inc. (OTCBB: VSUL) Visualant is a featured showcase company on Investorideas.com and related security portals and blogs. The cost for this service is Four Thousand Dollars per month which has been paid by a third party. Our sites do not make recommendations, but offer information portals to research news, articles, stock lists and recent research. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All information on showcase companies is taken from public documents, news, filings and the company website and management. This site is currently compensated by featured companies, news submissions and online advertising. Investors are reminded all investment involves risk including possible loss of principal.
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Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs
Visit the showcase page: http://www.investorideas.com/CO/VSUL/
Disclaimer: Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs. Starting Nov 24th, 3 months (4000 per month by third party)

Wednesday, January 5, 2011

Security Stocks; Visualant (OTCBB:VSUL) Announces First License of Spectral Pattern Matching Technology; Environmental Applications Subject of License with Javelin LLC

Seattle, WA - January 5, 2011 (Investorideas.com Defense Newswire) - Visualant, Inc. (OTCBB: VSUL), a pioneer provider of industry-leading color based identification and diagnostic solutions, is pleased to announce it has entered into a license agreement with Seattle-based Javelin LLC ("Javelin") for development of environmental diagnostic applications of its Spectral Pattern Matching ("SPM") technology.
Visualant's primary focus with its SPM technology and its TransTech Systems, Inc. subsidiary is the multi-billion dollar security and authentication marketplace. SPM technology has broad applicability to a number of fields of use outside the security and authentication marketplace including medical, agricultural and environmental diagnostics. Today's announcement is the first license agreement for the SPM technology. It marks a significant milestone in the Company's growth. The first public demonstration of the Company's SPM technology occurred in October of 2010. This license is what the Company hopes will be the first of many such agreements. The license, which is exclusive for environmental applications, provides for certain minimum payments and market-rate royalties.
The Visualant SPM technology, with its ability to map color at the photon level both within the humanly visible spectrum as well as in the near infra-red and near ultra-violet, can be used as a diagnostic tool for a host of environmental applications. These include determining the presence of foreign substances such as oil in water and determining water quality among many others.
Javelin LLC Co-founder, Peter Purdy, stated, "I have worked in the optical solutions field for over twenty years. With the Visualant SPM technology we can differentiate our product for testing at the molecular level due to its very low cost. It is a transformative technology with a broad array of potential applications." Matthew Creedican, Javelin Co-founder, agrees and mentioned, "We have been aggressive in pursuing Visualant's technologies for our testing applications and the extreme competitive advantage SPM brings in size, cost and durability. We are excited about a number of the current environmental applications we currently are working with as well as future iterations of the technology."
About the Javelin license agreement Visualant CEO Ron Erickson said, "While we remain focused on our work in the security and authentication marketplace, we have been resolute in our belief the Visualant SPM technology has extensive applications in many fields of use. We look forward to working with Javelin to solve some big problems in environment diagnostics. Over time, we expect to secure additional licensing opportunities for the SPM technology in medical, agricultural diagnostics and in other fields of use."
About Visualant, Inc.
Visualant, Inc. develops low-cost, high speed, light-based security and quality control solutions for use in homeland security, anti-counterfeiting, forgery/fraud prevention, brand protection and process control applications. Its patent-pending technology uses controlled illumination with specific bands of light, to establish a unique spectral signature for both individual and classes of items. When matched against existing databases, these spectral signatures allow precise identification and authentication of any item or substance. This breakthrough optical sensing and data capture technology is called Spectral Pattern Matching (SPM). SPM technology can be miniaturized and is easily integrated into a variety of hand-held or fixed mount configurations, and can be combined in the same package as a bar-code or biometric scanner.
Through its wholly owned subsidiary, TransTech Systems, Inc., the Company provides security and authentication solutions to security and law enforcement markets throughout the United States.
About Javelin LLC
Javelin LLC is a developer of industry-leading technology solutions. Principals of Javelin LLC have invented and commercialized numerous new technologies involving augmented reality, Doppler speed sensors and head mounted display systems for consumer, industrial and military application. Contact Javelin today for further information on its technology solutions, by visiting www.info@Javelinenvironmental.com or calling 1-813-468-9857 East coast or 206-660-4228 West coast.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements (within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934) regarding us and our business, financial condition, results of operations and prospects. Forward-looking statements in this press release reflect the good faith judgment of our management and are based on facts and factors currently known to us. Forward-looking statements are subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements as a result of either the matters set forth or incorporated in this press release generally or certain economic and business factors, some of which may be unknown to and/or beyond the control of Visualant, Inc.. Specifically, we are exposed to various risks related to our revenue projections, our need for additional financing to support our technology development, acquiring or investing in new businesses and ongoing operations, the sale of a significant number of our shares of common stock could depress the price of our common stock, the market price of our common stock may be volatile, and we may incur losses in the future. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We do not undertake, and we expressly disclaim, any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of the press release.
Contact:
Visualant, Inc.:
Lynn Felsinger
206 903 1351
Lynn@visualant.net
Investor Relations
Paul DeRiso
Core Consulting Group
925-465-6088
paul@coreconsultingroup.com
Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs
Visit the showcase page: http://www.investorideas.com/CO/VSUL/
Disclaimer: Visualant, Inc. (OTCBB:VSUL) Featured showcase company on Investorideas.com and related security portals and blogs. Starting Nov 24th, 3 months (4000 per month by third party)

Tuesday, January 4, 2011

Defense Stocks Update; SPADE Defense Index; 2010 Summary

January 4, 2011 (Investorideas.com newswire) - Investorideas.com, a leader in sector research including defense and Homeland Security stocks, reports sector commentary from Scott Sacknoff, manager of the SPADE® Defense Index.
Interesting Fact: Every constituent in the SPADE Defense Index was positive during the month of December 2010. This is the first time this has happened.
InvestorIdeas.com Newswire End of Year Summary
If the goal of an investor is to beat the benchmark, which for the aerospace and defense sector is the SPADE Defense Index (NYSE: DXS), then in 2010 most investors failed. Investors who wanted to gain exposure to the defense sector by simply buying one of the large prime contractors � Lockheed Martin (NYSE: LMT), General Dynamics (NYSE: GD), Raytheon (NYSE: RTN), L-3 (NYSE: LLL), etc. were proven wrong as the mid- and small-caps dominated gains in 2010. The exception was Boeing (NYSE: BA) which had a year marked by ups and downs but finished substantially higher and Northrop Grumman (NYSE: NOC) whose announcement to sell its shipbuilding operation was met favorably. Overall, investors who purchased shares of a sector ETF, like the Powershares Aerospace & Defense ETF (NYSE: PPA) which gained 9.6% during the year, benefited from the added diversification that it provides.
InvestorIdeas.com Newswire Overall, the sector trailed the Dow by 1.4% and the S&P500 by 3.17%, the first notable underperformance since the index was launched in 1998. However, considering the negative news cycle on defense, in particular relating to an anticipated decline in the defense budget in the face of mounting federal deficits, and the fact that the defense sector still managed nearly double digit gains, the gains likely surprised some financial analysts. With the exception of August, which saw the sector underperform by nearly 4% (on no specific news), the aerospace & defense sector would have outperformed the market.
InvestorIdeas.com Newswire InvestorIdeas.com Newswire Mergers & Acquisition
As companies seek to position themselves, nearly 20% of the SPADE Defense Index was acquired or is pending acquisition during 2010. Statistically, the sector saw several hundred deals although most were smaller sized. Multi-billion deals were few. Index constituents that were acquired: Argon ST (STST), Cogent (COGT), Dyncorp (DCP), ICX Technologies (ICXT), and Stanley (SXE). Companies whose acquisition were announced but are pending include: L1 Identity (ID), Applied Signal (APSG), Ladish (LDSH), and CPI International (CPII).
Forecast for 2011
(As I get ready to post this, its just been announced that Defense Secretary Gates will announce later this week the results of his previously announced plans to find $100 billion in savings. Among the programs reported to be on the block are the Expeditionary Fighting Vehicle, a 40-ton amphibious landing craft being developed for the Marine Corps by General Dynamics; a medium air-to-air missile being developed by Raytheon Co; and a further restructuring of the Lockheed Martin F-35 Joint Strike Fighter that could extend the program's development phase by up to two years. Republicans in the House of Representatives have reiterated their calls this morning for 20% cuts in most government agencies for 2011 (except defense), however Senate Republicans have not said they are on board with the plan. Neither of these news items impact our comments below).
The sector's 9.62% gain in 2010 should not be a surprise to those that follow the sector considering the underlying fundamentals and technicals which have seen the index consistently above the 50-day and 200-day moving averages. Defense companies end the year with a record amount of cash on hand and have been making acquisitions to position themselves into higher growth areas of their business or into adjacent areas that can generate revenues and profits in the coming years. Combined with an economy that has been rebounding since the 2008-2009 lows -- which has led to increased manufacturing activity, increased exports, the beginnings of a multi-year expansion in the commercial aerospace segment, and a high level of global security issues -- and the companies operating in the sector remain in a position where the strengths may counteract the negatives. In fact, a number of executives in the most recent quarterly reporting period issued positive comments for 2011 and several analysts have forecasted that companies such as Lockheed Martin, which underperformed in 2010, should see a rebound in their shares later in 2011 and 2012.
It is our belief that the sector is much more stable than it is given credit for and while issues equate defense sector cuts with deficit reduction will likely impact the perceptions among the investor universe and impact some companies more than others, a long-term structural impact similar to the 1990s is unlikely. We base this belief on the following:
1. Forecasted cuts in the defense budget are not likely to begin and take effect until October 2011 with the FY-12 budget; although there is an extremely low outside chance that the FY-11 budget (which has still not been passed) may see some changes when the incoming Congress arrives in January. Going forward, while the deficit and the national debt remain high priorities in the rhetoric of the campaign trail and on Capitol Hill, the reality is that Congress has become increasingly partisan in recent years. The likelihood that dramatic deficit reduction changes to the budget will take place is far from guaranteed and would mean the two parties actually cooperating on a very sensitive issue -- namely how much should be spent on national security. Is there waste that can be cut? Absolutely. Can we expect to see some restructuring in how DoD spends its money. Absolutely. The real question is what the impact of these changes will have on companies operating in the sector.
2. We've Seen this Picture Before.... Fundamentally, the sector remains in a much stronger position than it did during the spending decline that took place in the early 1990s following the end of the Cold War. Many firms operating at that time were caught off guard a bit as the changes took place rapidly. This led to significant declines in the share prices of many companies and the mergers or acquisition between them as the defense industrial base found it necessary to reshape itself over the next decade. The current batch of sector executives worked in the sector at the time and saw the impact of what the cuts meant. The lessons learned from the period are still fresh in their minds. Knowledge that the defense budget, in or around FY-11, was set to peak has been known for the past several years, giving industry executives the time to build-up their balance sheets, make acquisitions, and restructure their operations. Aerospace and defense companies today, as a whole, have historic levels of cash on hand and extremely low debt levels. Firms have also been repositioning for the new defense environment by acquiring or expanding into commercial and non-defense adjacent markets -- markets that often have higher margins and hence increased profitability as compared to defense weapons systems. Commercial aircraft, helicopters; air, sea, and land robotics, and IT services; to name but a few.
3. Increased marketing to global customers is being pushed by the White House who supported marketing aerospace products overseas and making long overdue changes to export licensing procedures. This is highlighted by the recent $60 billion deal to sell defense products to Saudi Arabia. Dozens of other multi-billion dollar deals have also been announced, approved by Congress, or are in process.
4. Most defense firms are highly diversified, participating in numerous defense and commercial programs. Individual programs typically account for less than 5% of overall revenues; so cuts may impact a firm but not cause its collapse. Most of the firms in the SPADE Defense Index report that they receive less than 5% of their revenues from the war effort.
Challenges
The $100 billion a year reduction being floated is a big number. What has yet to be decided though are the specifics of where it will come from. A number of forecasts indicate that a large percentage could come from savings in health care, pensions, and staff/support reductions. The likelihood that a large weapons system will be cancelled is high--if nothing more than as a symbolic measure. The likelihood that some systems in development are contracted or their schedules delayed to save money and that it is contracted to one of the big five prime contractors is also very high. However, investors will need to estimate what the budget decline means verses the sector's positives (ie. the expansion in their commercial operations where they have increased margins and their entry into new higher growth activities).
This is the big challenge to investors in 2011 and 2012. Can revenues, earnings, and margins overcome the negative budget news cycle? How well have the individual firms executed their strategy and how easy will they move through this period with less bumps than the early 90s?
A key is to not let those who talk about defense cycles influence your thinking. Today IS different. Past cycles have been defined by the development and the use of systems or war/post-war budgets. The U.S. may be exiting wars in Iraq and Afghanistan but previous declines have been marked by a more peaceful climate. The 1990s �peace dividend� followed the Cold War and the early 70s decline was post-Vietnam, etc. While enemies in the world remained (ie. Soviet Union in the late-1940s to early-1950s, post WWII) the immediate threat was less than the one we just faced. Today, that is not true. Terrorism still exists. Iraq, North Korea, and others are developing and flexing their nuclear muscles. China is a growing unknown. The threat today is equal or greater than what we've just faced. Doubt it? Just listen to the number of analysts on CNBC who predict 2011 will see a major cyberterrorist attack.
So what should investor's do? It is my belief that 2% - 5% of one's domestic allocation be in the defense sector -- at the high level it reflects the U.S. GDP share of the aerospace and defense sector, at the low, the amount the S&P500 underweights the sector. Consider it as insurance that since 1998 has beaten or equaled the broader market or, in the case of last year, provided nearly a double digit gain in what was considered a down year for the sector.
InvestorIdeas.com Newswire Scott Sacknoff, Index Manager
SPADE Defense Index
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info@spadeindex.com
www.spadeindexes.com
More info and previous interviews:
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