Airport Defense, Beltway Offense

Washington, D.C. – At a crowded congressional hearing on aviation security two weeks ago, the temperature in the room was uncomfortably high. So too, with the London Underground bombings still fresh in the headlines, was the frustration voiced by some of the members of the Subcommittee on Economic Security, Infrastructure Protection and Cybersecurity.

“The Transportation Security Administration spends approximately $4 billion a year to screen passengers and baggage,” said Rep. John Linder (R-Ga.), “I fear that this country is not getting nearly the return it would hope on such an investment.” Rep. Loretta Sanchez (D-Calif.) grumbled that “we’ve had plenty of meetings with many technology companies who tell us they have a solution to everything.”

One witness feeling the heat that day was Deepak Chopra, chief executive of OSI Systems. His company pulled in half its $247 million in 2004 revenues from its security division, Rapiscan Systems, which makes X-ray and gamma-ray inspection systems, as well as devices to detect dangerous materials (explosives, drugs and so on) using bursts of subatomic particles. After the Sept. 11, 2001, terrorist attacks, the U.S. Transportation Security Administration spent heavily on Rapiscan machines. TSA remains Rapiscan’s biggest customer.

Full story at Forbes.com

Jet-Set Debt

Morningstar analyst Arijit Dutta advises stateside investors not to stray too far from home in their bond portfolio. “You should start with a core bond holding,” he says, “something domestic and investment grade.”

But with more than half the world’s debt issued outside the U.S., there are plenty of ways to wager on overseas fixed income and make good money doing it. The tricky part is figuring out how and where. Forget about buying foreign bonds themselves. Most people can’t cope with the time, taxes and transaction costs involved.

Low-cost bond funds get rid of those problems but don’t solve a big one:allocation. These funds tend to either stay out of the U.S. market altogether or keep a majority of their holdings–usually 60%–overseas. You can tack on one of these to your core domestic portfolio, but how much is too much, especially as global economic conditions shift?

Full story (reg. required) at Forbes.com

Dialing Up Emerging Markets

Investors who gag on the prices of U.S. telecom stocks but want to stay with the sector should look abroad. “There is still a ton of growth within emerging markets telecom,” says Meagan Morris Nace, equity analyst at DuPont Capital Management.

Nace is one of four analysts focused on emerging markets at DuPont Capital, which oversees $26 billion for its chemical company parent and for outside clients. She points to the opportunities awaiting Russia’s Mobile TeleSystems, the largest mobile phone operator in the former Soviet Union. The $4 billion (2004 sales) company does most of its business in Russia, where, Nace says, barely half the population has wireless service. She expects that three-quarters will have it within three years. The company also controls half the Ukrainian market, the next largest in the region, where wireless penetration is only 34%.

Full story (reg. required) at Forbes.com

Digging Into Natural Resources Stocks

A value manager for 31 years, Andrew Pilara has piled up an impressive record in natural resources investing. Since its launch in 1995, his no-load fund, RS Global Natural Resources, has beaten the S&P 500′s 9% return by three percentage points.

RS Global Natural Resources (RSNRX), with $1.1 billion in assets, also gets good performance grades from FORBES: B and A+, respectively, for up and down markets. So what’s Pilara’s take on natural resources these days? Bullish. “For the rest of the decade,” he says, “this is the place to be.”

Bold words, given the frothy prices for many commodities and the stocks of companies doing business in them. But Pilara, a self-proclaimed contrarian, waves off talk of a commodities bubble. “If you look at the resources stocks we’re invested in,” he says, “they sell at single-digit multiples.”

Full story at Forbes.com

Israel: Near-Peace Dividend

In early June, Shopping.com shareholders enjoyed a 19% pop in the value of their holdings when eBay said it would buy the Israeli online comparison shopping service. Robert Goldman, chief investment officer at Banneker Capital Management, says that isn’t unusual for Israeli companies.

“They tend to dominate a specific area,” explains Goldman, who also oversees investment for the Blue & White Fund, a mutual fund devoted to investing in Israeli stocks. And once Israeli outfits reach a certain size and mastery of their niche, he argues, bigger buyers often come calling.

Full story at Forbes.com