Last Thursday's terrorist blasts in London's subway system put the focus back on companies that offer us protection from such future attacks. This will likely wake up information technology (IT) managers and lead them to open up the purse strings to secure networks, files and storage.

Those IT managers who have delayed protective deployments should now spend their budgets, given the vivid reminder that terrorism remains a corporate hazard both in the physical world and in cyberspace, and that should benefit the homeland security sector.

If you want to invest in homeland security, you might consider the stocks that comprise the ISE-CCM Homeland Security Index (HSX). Launched in June, this is a market-weighted universe of 30 companies involved in homeland security. Trading volume is low, but it is picking up in the wake of last week's terrorist attacks.

My research suggests that there are opportunities in some of the names if you are willing to take the risk of stock-picking. The first choice in this group always seems to be

L-3 Communications

(LLL) - Get Report

-- the largest component of the HSX -- but its upside appears limited.

Also, this week


covered several names in homeland security, showing a list of stocks that popped higher following the London bombing. Of those highlighted,

CACI International

(CAI) - Get Report



( IDNX),

Verint Systems

(VRNT) - Get Report


OSI Systems

(OSIS) - Get Report


RAE Systems

( RAE) are in the HSX.

The cheapest of these five stocks are Identix at 34.4% undervalued and RAE at 29.3% undervalued.

The component companies offering software and services to protect networks from cyber-terrorism are the cheapest, according to my models. Below, I offer my screens on select stocks in the index, ordered from most undervalued to most overvalued.

RSA Security

( RSAS) designs software to help organizations protect private information such as the identities of the people accessing and exchanging that information. The company's solutions include cryptography and security technology services. My model shows RSA 51.6% undervalued, which puts its fair value at roughly $25.65, so it's not a stretch to see potential strength toward its 52-week high at $23.91 in the second half of the year.

Internet Security Systems

( ISSX) provides network and information security products and services that help to protect businesses from network and system security risks. My model shows the stock 34.5% undervalued, and its fair value is at $33.87. Thus there is potential for a test of its 52-week high at $25.76 in the second half of the year.

Identix makes devices that read fingerprints and facial IDs. My model shows this stock 34.4% undervalued, which puts its fair value at $8.36, just above the stock's 52-week high at $8.24.

Check Point Software

(CHKP) - Get Report

develops security software for Internet protocol networks. Applications are designed to protect personal computers from hackers, spyware and data theft. My model shows shares to be 33.9% undervalued, with fair value at $32.72. It is quite feasible for shares to test the 52-week high at $26.21 in the second half of the year.

RAE Systems provides chemical and radiation detection monitors. My model shows RAE 29.3% undervalued with fair value at $5.40, and it is possible shares could reach that level in the second half of 2005.

L-3 Communications supplies subsystems to secure networks, mobile satellite communications, information security systems, and numerous devices used in the defense of our country. The stock is trading right around its fair value of $74.31 per share, which indicates that the Homeland Security component might already be included in its share price. Although the weekly chart profile for LLL is positive, my model shows a monthly risky level, where holders should sell the stock, at $76.66.

FLIR Systems

(FLIR) - Get Report

designs thermal imaging systems and infrared camera systems used in security applications such as long-range surveillance, reconnaissance and law enforcement. The stock is trading right around its fair value at $31.20, which indicates that the stock needs a new catalyst to trade toward its 52-week high at $34.95.

OSI Systems makes advanced neutron cargo inspection systems for items such as weapons and explosives. My model shows the stock trading right around fair value at $17.39, with its 200-day simple moving average (SMA) at $17.69. This stock needs a new catalyst in order to move significantly higher.

Verint Systems provides intelligence and communications intercept software. My model shows Verint trading right on its fair value at $39.76. This indicates to me that the stock should have difficulty trading above its 52-week high at $42.22.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Identix, OSI Systems and RAE Systems to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of Technology Report

newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --

click here

to send him an email.