JBL: Fear Factor

American Science and Engineering is a perfect stock for these troubled times.
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Updated from June 3

"The bomb under the table should never go off," said Alfred Hitchcock, who believed the fear was always worse than the shock. So it is with our market today.

I have a stock pick that is literally bombproof; but first, the metaphorical bombs the market is worried about.

Fundamentals are still strong, and corporate balance sheets are the best they have been in years. The

S&P 500

is trading below normal multiple, given the level of Treasury yields. This is not a weak market. What is scaring us is the proverbial bomb; we fear it will go off, and that our portfolio will go boom.

Natural gas inventories are unusually high; prices should be down from these levels. So why aren't they? The answer is the "bomb" again. We are afraid of a predicted strong hurricane season. Of course, last year came with a prediction of very little action. Weatherman has to be a great job -- you are never expected to be right.

If there is a hurricane that disrupts production, then natural gas will be underpriced here; if not, it is overpriced. That's a hard way to invest hard-earned money. The bomb not going off is making investors wary.

The same is true with oil. The bomb is the nut cases who control the majority of oil around the globe: We don't know when or if they will go off.

The final bomb is the

Federal Reserve

. The market is hoping 1991 is not repeated, and that the Fed doesn't overtighten us into recession. The market is waiting, watching and hoping they don't witness an explosion. If the Fed gets it right, then the bomb the Fed is watching, inflation, will not go off.

So finally, the bombproof stock, literally, is

American Science and Engineering

(ASEI)

, a maker of screening devices for border and airport security whose sales are exploding.

Ok, enough puns, and I certainly don't mean to belittle the threat of actual terrorist bombs, I'm just getting in touch with my inner Hitchcock.

American Science and Engineering has seen annual growth of 112% over the last five years, and its stock price has been just over a nine-bagger. The company has a forward multiple of 12.6 based on consensus earning estimates of $4.50. With a growth rate right at 40% this year, this gives this technology and growth company a phenomenal PE-to-growth ratio of 0.32.

For those who went to public schools, like I did, this means buy this stock. No matter what these other "bombs" do to the economy, the bomb-detecting company is going to succeed because security will be a priority in any scenario.

American Science and Engineering makes the mobile X-ray van known as the Z Backsetter Van. This unit can see through a vehicle and detect if there is anything that shouldn't be there, from people to bombs to drugs. The U.S. government is the biggest buyer of these vans.

The negative is that the government can be a fickle buyer; the positive for investors is that, in this climate of border security, the government faces too much backlash and criticism to not be a buyer -- it has to prove to the public that it is doing all it can to prevent any attacks. In 2005, the U.S. government placed $80 million in orders, a total of 79 vans. American Science and Engineering is also selling the vans in Asia and the Middle East. Indeed, one of these units made possible a large heroin bust in Asia a few years ago.

American Science has also developed an X-ray machine for airport screening that will not work like the old X-ray glasses that help a pervert sneak a peak. These machines will guard private parts while showing if the person is concealing anything.

On May 17, American Science announced the first sale of Gemini to the U.S. government. Gemini is a nonintrusive parcel-inspection system designed for use in sensitive government areas. It is the first product on the market to use dual energy transmission and proprietary Z Backscatter X-rays.

American Science and Engineering is 40% off its 52-week high. With over $11 a share in cash, more than $93 million total, and less than $10 million in debt, the company has a terrific balance sheet.

Expectations got ahead of this stock as reflected by the knee-jerk reaction to its fiscal fourth-quarter results. Wall Street had predicted 76 cents per share in the last quarter, and ASEI apparently disappointed by reporting EPS of 51 cents. But on the May 23 conference call, CFO Kenneth Galaznik explained the 76 cent per share consensus expectation "excluded the accounting treatment effect of a charge for certain outstanding warrants," which equaled 42 cents per share, according to the firm's 8K filing.

So in reality, American Science and Engineering posted earnings of 93 cents per share, well in excess of expectations. Nevertheless, the stock has been punished significantly for its perceived sins and is now a buying opportunity.

Bronco Busting (Out)

I added to my shares of

Bronco Drilling

(BRNC)

last week by selling my

Cisco

(CSCO) - Get Report

. I still like Cisco, but it has had a good run, and being 100% invested, I had to sell something.

Bronco Drilling has seen a decline in stock price since I first recommended it on

Feb. 25; however, it recently blew away earnings and is still seeing a high rig-utilization rate. I see this as an opportunity to buy a good company.

I am also adding to my shares of

Xethanol

(XTHN)

by exercising my warrants. Xethanol recently announced the acquisition of a plant in Georgia that will produce 35 million gallons of ethanol a year. Xethanol also unveiled its plans to expand throughout the east coast through its subsidiary CoastalXethanol.

Finally, the mark of a good CEO is his or her ability to leave a company and see that company remain efficient. Henry Paulson was a good CEO at

Goldman Sachs

(GS) - Get Report

and is a good choice for Treasury secretary. Goldman has seen a pullback and its CEO go into public service; this is a buying opportunity.

I

reiterate my belief that this is a $200 stock. Goldman is best-in-breed of investment banking firms. I do not own shares of Goldman, due to the conflict of a family member (my wife) covering this stock.

Remember

being poor is bad, staying that way is stupid.

At the time of publication Layfield was long Bronco Drilling and Xethanol, although holdings can change at any time. A former All-American offensive lineman at Abilene Christian University, John Layfield played professional football for the then-Los Angeles Raiders and later in the World League. After wrestling in Japan, Mexico and Europe, Layfield arrived in the WWE in the mid-1990's. A former WWE champion, JBL was a featured wrester at WrestleMania 21 and can also be seen on Friday Night SmackDown! on UPN. Outside of the ring, JBL is a self-taught investor who was recruited to write a personal finance book, Have More Money Now, which was released in the summer of 2003. He has appeared on finance shows on CNN and Fox News Network. He is co-chairman of the Smackdown Your Vote! Campaign and he has joined both the USO and Armed Forces Entertainment (AFE) for tours through Iraq, Afghanistan and other Middle East countries. He regularly visits the Walter Reed Army Medical Center and the Bethesda naval hospital to meet with wounded troops.