Picking securities with a focus on security
Stocks such as Boeing, ADT give investors exposure to growth market
Security is a theme that investors can relate to in their everyday lives, whether it’s the locks on their doors, the software saving their computers from hackers or even the force fields they see in scifi movies.
The latter concept may sound like something only seen in Star Trek, but Boeing Co. recently filed a patent for a vehicle sensor that detects explosions, instigates a laser that super- heats the air around the vehicle, and passes an electric current over that air, thus absorbing the blast impact.
Such technology has obvious military applications, but there could be civilian applications in automotive protection at some point down the road. Straddling the defence and consumer sectors is something Boeing does quite well, which is one reason why it’s one of portfolio manager Greg Gipson’s biggest holdings.
“Companies that are able to straddle those different arenas end up doing very well, because in many ways, the military budget of the U. S. government supports innovation,” said BMO Global Asset Management’s head of portfolio management for Systematic Investments, whose mandates total about $ 5.3 billion.
Of course, it helps that Boeing has a very strong balance sheet, healthy cash flow growth and returns a lot of capital to shareholders.
But security shows up in various forms in Gipson’s portfolios. The BMO Global Equity Class, which Gipson and his team took over in December 2012, has owned large defence manufacturers such as Lockheed Martin Corp. and General Dynamics Corp. in the past.
He also owns ADT Corp., a home and business alarm and monitoring company that benefits from the increasing demand for security systems.
“When you think of security, there is that high- level security, but also personal security,” he said, pointing to increased tension across the globe.
ADT is also a play on renovations. Gipson noted that some experts believe 2015 will be a record year for home renovations in the U. S. That, coupled with the company’s very consistent business model and decreasing customer attrition rates across North America, makes the stock an appealing investment.
Yet another security- related investment opportunity the portfolio manager is bullish on is cyber security. One fund holding, FireEye Inc., was recently hired by health insurer Anthem Inc. after it was hit by a massive hack in February that involved the personal information of almost 80 million consumers.
A wave of other events such as the embarrassing cyberattack on Sony Pictures by North Korean hackers has even got the attention of U. S. President Barack Obama, who has discussed the topic a lot in recent months. Congress will consider various bills on the matter in the coming weeks.
“This is definitely a theme we believe will continue to expand going forward — sort of that next age of warfare,” Gipson said. “Some is preventative, some is triage.”
The manager noted that some of the names in the BMO Global Small Cap Fund could be takeover targets, since large software manufacturers such as Microsoft Corp. and Symantec Corp. often buy little security startups to bolster their product offerings.
More broadly, Gibson is growing more interested in Europe. For most of 2014, his exposure to the region was concentrated in insular economies such as the U. K. and the Scandinavian countries, as they are less dependent on exports other than oil.
“Lower oil is actually much more beneficial to Europe,” Gipson said.