Investing in Laser Technology
Jan 25th, 2007 | By Penny Sleuth Contributor | Category: TechnologyIf one satellite bumps into another satellite in space, is that such a major offense?
Well, it has some in Washington claiming it’s a harbinger to all out war in space.
During a test on January 11, China used an anti-satellite vehicle to take out one if its own weather satellites orbiting the Earth. The vehicle’s method of destructiveness was not terribly elegant. It didn’t explode. Nothing was shot from it. It simply rammed the weather satellite out of commission.
That doesn’t seem very scary, does it? Well, consider that nearly all U.S. military intelligence data travels over satellite links at some point during transmission, and this starts to look like a huge potential threat.
Beijing assured Washington that they were opposed to an arms race in space. Many in D.C., though, were left wanting more of an explanation…
Warfare technology continues to move rapidly away from conventional weapons. We will see more tests of weapons designed to disrupt our delicate information channels, as that probably is the most effective way to compromise our defenses.
While weapons that bully our satellites around by bumping into them might be crudely effective in the near term, much defense technology will continue to come from the more sophisticated laser industry.
Just last week, I wrote about Northrop Grumman’s test of a laser missile defense system mounted to a FedEx plane, which took off from LAX. If successful, expect them to eventually be onboard every commercial flight, at least from U.S. carriers.
What most onlookers don’t realize, though, is that an investment in the laser industry is one of the most diverse moves you can make for your portfolio.
I’ve been following the laser industry for years, and the best way to get a real sense of what it’s like is to go to one of its trade shows. You’ll see a handful of large, well-represented industry leaders, and a slew of miniscule private companies – some looking very amateurish. Of those small minnow companies, the ones that actually produce good products typically get snapped up by the bigger fish pretty quickly. This industry seems to be in a perpetual consolidation mode…
And a major player that’s been snapping up companies is Coherent (COHR: NASDAQ). This is one of the leaders in the laser arena, but has moved back to small-cap status. It’s market cap is about $955 million as I write this, it trades about 217,000 shares a day, and is priced around $30.50 a share.
In recent years, Coherent has been too large for me to actively recommend or even talk about. But now, it’s certainly an interesting company to look at…
I should first mention that this is not a pure play on defense lasers. Far from it. This is a diversified laser company that also has an avionics and defense division, which makes high-powered diode lasers and systems for tactical military use. But Coherent also makes lasers that help electronics companies build flat-screen LCD televisions. It also builds lasers and systems for semiconductor companies to build their chips. They even make lasers that are able to cut complex patterns in clothing made of leather and denim. There are laser applications for homeland security as well, with Coherent making systems that are used to detect harmful biotoxins.
At its current levels of 1.7x sales and 28x earnings, I think COHR is fairly priced. It’s not a bargain, but if you wanted exposure to a diversified laser company, I think the $30 level is a fair entry point.
Until next time,
Craig
January 25, 2007
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