Technology and Defense Combine for a Winner

We have been looking for emerging sectors in recent weeks, as the theme of basic materials and energy have become more entrenched and have become extended short term.

So our quest for something other than a metals stock or energy company has brought us to two other sectors. One is technology, the other is defense. These are still emerging sectors when it comes to their potential for turning into something more than selective issues in this space. One name we found showing strong price action that combines a bit of technology and defense is ManTech International (MANT Quote - Cramer on MANT - Stock Picks).

Although it may seem that being in the military business is profitable, firms like ManTech International weren't doing so well a few years ago. Up until last year, spending in Iraq had been limited to the basic areas of gasoline, bullets and keeping an army in the field. After winning a contract to support the U.S Army's mine-clearing effort in Iraq, ManTech's growth rebounded.

ManTech is an information and technology firm that integrates and manages high-tech systems in military operations. Since the Fairfax, Virginia-based company went public in 2002, it has been growing through acquisition, buying two or three companies a year. The latest acquisition was the purchase of SRS Technologies for $195 million, which added a boost to its revenues. It agreed to buy McDonald Bradley, a service-oriented architecture company, for $76.5 million.

By buying out other IT companies, the firms can share information securely and help analyze it to make a larger picture. It is believed that this will lead to greater prevention of catastrophes like 9/11. ManTech has bulked itself up and become distinguished in high-end intelligence work through its buy-outs.

Mantech International

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The stock price has been moving higher in recent months, as participants are accumulating shares, validating the company's acquisitions and business model. This hasn't been the smoothest of rallies, but the stock has been making higher highs and making new all-time highs. That is the basic definition of an uptrend and is an underlying indication of accumulation.

During the bulk of the market's decline between October 2007 and March 2008, this stock was able to defy the macro weakness, and instead spent that time forming a large bullish ascending triangle. This configuration was ultimately resolved to the upside in early May when it broke above resistance in the $48 level.

We would use that $48 level as important support and place stops on long positions below that level. We see further upside to the low $60s and would prefer to be a buyer on weakness to the $50-$51 level.