This column was originally published on RealMoney on Aug. 4 at 11:11 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

With all the excitement surrounding homeland security stocks, there's a familiar anxious feeling among investors when looking at the group: the feeling of "I might be too late."

However, as the space matures and the winners shake themselves out, it's never too late to buy stocks like

Analogic

(ALOG)

that have a significant margin of safety based on their net tangible assets, superior technology in the homeland security sector, and a reasonable wall of worry that people so far have been reluctant to climb.

Analogic has two primary divisions -- medical imaging and explosion detection -- that use similar technology. For years the medical imaging division had experienced moderate to slowing growth. However, the explosion-detection division, driven by sales of its EXACT computed tomography scanner, has experienced volatile growth since 2001.

L-3 Communications

(LLL) - Get Report

has been the primary purchaser of the EXACT product, and in June placed a $36 million order with Analogic, its fourth such order in 14 months.

EXACT is the primary component in L-3's explosion detection equipment, which has been purchased by the Transportation Security Administration for airport use in the U.S., and the L-3 systems are also used in Israeli, Singapore and Italian airports.

Analogic has $231 million cash in the bank, no debt, and significant other assets that can potentially be sold, including a hotel that generated $6.4 million in revenue over the past nine months vs. $5.8 million in revenue in the year-ago period. Altogether, on the balance sheet, the company has $320 million in net tangible assets, and sports a market cap of $700 million. With an enterprise value around $400 million and cash flow from operations around $30 million, it is worth a look.

The primary risks is that L3 stops using the EXACT product. This is unlikely in the near-term given the recent orders and the fact that Analogic's product is embedded in the products that the TSA has been rolling out, and I think it's more likely that L-3 ultimately buys Analogic, much like

General Electric

(GE) - Get Report

bought InVision for $900 million. In the nine months before that acquisition closed, InVision had sales of $248 million. In the past nine months, Analogic has had sales of $262 million.

The other factor that has been potentially holding down the stock is that founder Bernard Gordon has been mass-dumping his shares. In the past year, Gordon's holdings have gone from 1.3 million shares to less than 600,000 as part of an automatic selling program that sells up to 5,000 shares per day, significantly reducing his stake in the company.

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This might have a silver lining, though, as current shareholders, including large funds such as T. Rowe Price and Royce, can potentially be more successful in pressing the company to look to be acquired. Gordon has no operational role in the company at all at this point. Meanwhile, the company has begun a buyback program with the June 7 announcement, in which it will start buying back up to $25 million worth of its shares. With 13 million shares outstanding, this would represent about 4% of its shares.

The company has made a decent run in the past few months, but given the strong cash position, which was boosted recently by a $50 million gain on their stake in Cedara, when Cedara was bought by

Merge Technologies

(MRGE)

, I think there is plenty of room to grow here. The $231 million net cash, combined with the buyback, provide a nice margin of safety.

Riding the Wave
This stock's homeland security business and its stock have seen steady growth

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James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of

Trade Like a Hedge Fund

and

Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;

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