5 Homeland Security Stocks That Make Safe Buys

MINNEAPOLIS (Stockpickr) -- In a few days, we will commemorate 10 years since the tragic events of 9/11. Having been in New York then, I will certainly never forget. That day changed the world forever.

In the aftermath, an entire category of stocks dedicated to homeland security emerged from within the defense industry. Investors now can select specific stocks of companies that play a critical role in our national security. Osama bin Laden may be dead, but the threat still exists. As long as it does, there is money to be made from the efforts to keep us safe.

It's a good thing, too. With a national debt that is out of control and an economy teetering on the brink of a double-dip recession, stock-picking is exceedingly difficult. Where can investors go and know that growth and profits are likely to follow?

Related: 5 Big Stocks to Trade for Gains in This market

Consider homeland security stocks. In the greater story of military and defense stocks, investors need to brace for cuts. That is less the case with homeland security. Nobody wants to be accused of cutting spending there if and when another terror event occurs.

Here are five homeland security stocks to safely buy for your portfolio.
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Flir Systems

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Flir Systems ( FLIR) is a $4 billion market cap homeland security company that is focused on thermal imaging systems that enable the watchers to see at night. In addition, the company's detection division helps design instruments to detect biological, chemical, nuclear and radiological threats to homeland security. It is relatively safe to assume that government contracts to this mission-critical company are protected.

Shares of Flir are down more than 30% since budgetary concerns began to dominate headlines early this summer. Investors should use the discount to as an opportunity to buy shares. Although the company has missed estimates slightly in each of the last three quarters, its prospects for growth remain impressive.

The average Wall Street estimate is for the company to make $1.40 per share in the current year, with that number growing 25% to $1.75 per share in 2012. Investors can buy that growth for just 18 times current-year estimated earnings. That is a bargain in my book for a company that plays an important role in national security.

Flir, one of the top-yielding aerospace and defense stocks, shows up on a recent list of 10 Stocks That Avoid the September Slump.

American Science & Engineering

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The fear of another terrorist attack on U.S. soil persists, and with that the fear of weapons or devices being smuggled into the country. Keeping this warfare, be it nuclear, chemical or biological, out of the U.S. is a top priority.

To that end, screening device company American Science & Engineering ( ASEI) is poised to benefit. Its products search cargo at ports, airports and train centers across the country. The company has products to screen cars and trucks as well human beings.

American Science & Engineering is profitable and pays a small dividend of 1.9%. Since July 21, shares are down 20%, caught in the downdraft of speculation regarding massive budget cuts to military budgets. But I'd be shocked if this company sees a dime of cuts. Its products are mission-critical.

With the stock trading for only 19 times current year estimates of earnings, I would buy this stock at these lower prices.

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I.D. Systems

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One potential solution to the current economic malaise is small business. These engines of growth have been struggling under the weight of competition from larger players. In the homeland security space, the government is poised to provide support to these smaller entities that play a critical role in keeping the country safe. I.D. Systems ( IDSY) is a $56 million market cap company that helps other businesses and governmental agencies keep track of enterprise assets. Its wireless solutions allow customers to monitor everything from fork lifts to trailers and rail cars. If something goes missing, I.D. Systems will know about it.

Shares of I.D. Systems have been very stable during this uncertain market environment. The company is expected to lose money this year, with profits coming in 2012. As the importance of asset tracking becomes more prominent in the discussion of homeland security, I.D. Systems is poised to grow.

Currently at around $5.13 per share, the stock is a bargain given the potential size of this market. I would buy this homeland security stock.

CACI International

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The reliance of the global economy on information technology, including the Internet and wireless networks, makes for prime terror targets. Cyber security is an absolute must as more and more trade takes place over the Internet. Hackers have the ability to disrupt power services, air travel and the banking system from the comfort of computers located far from any law enforcement or military presence.

CACI International ( CACI) provides IT services to the federal government and commercial customers in the U.S. and internationally. In addition to helping set up command and control for military missions, the company provides cyber security against potential threats to any number of networks and systems that may be vulnerable to attack.

Shares of this $1.6 billion market cap company have been hit hard by concerns regarding the federal debt and budget deficit. Politicians cutting spending here, though, would be making a big mistake and opening the door to any terrorist ready to find the one opening that could cripple our way of life. Since the beginning of July, shares are down 17%.

Considering the company has beaten average Wall Street estimates in each of the last four quarters, I would use the discount as an opportunity to buy. Trading for just 10 times estimates for the fiscal year 2012 ending June 30, CACI shares are cheap in my opinion.

AeroVironment

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In the world of homeland security, much of what takes place to keep us safe occurs outside of our borders, where the U.S. may or may not have a presence. To keep an eye out for terrorists, the military has greatly increased the use of predator drone aircraft. These unmanned vehicles are difficult or impossible to detect, allowing for missions in air space that does not belong to us.

AeroVironment ( AVAV), which designs, develops, produces and supports unmanned aircraft missions, is a key player in a fast-growing business. This relatively new publicly traded company came to market in 2007, and the challenging economic environment since its initial offering has kept its valuation in check. At the current price of about $27.88 per share, the stock is only slightly above the $24 it fetched on its initial day of trading.The stock may not be doing much since 2007, but operating performance has been stellar. In each of the last four quarters, the company has beaten average Wall Street estimates for profits. Analysts expect double-digit profit growth from this year to the next. With shares trading for 21 times current fiscal-year profit estimates, investors can still buy this homeland growth story at a reasonable price.

In the future, I would expect orders for drone aircraft to explode as orders for traditional military craft decline. AeroVironment is poised to benefit from this simple budgetary shift to how the U.S. protects the homeland.

To see these stocks in action, visit the 5 Homeland Security Stocks to Buy Safely.

-- Written by Jamie Dlugosch in Minneapolis.

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At the time of publication, author had no positions in stocks mentioned.

Jamie Dlugosch is a founder and contributor to
MainStreet Investor and MainStreet Accredited Investor . Formerly, he was president and CEO of Al Frank Asset Management. He has contributed editorially to The Rational Investor , The Prudent Speculator , Penny Stock Winners and InvestorPlace Media .

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