Scorecard: 2007 Beltway Stock Bets

Washington, D.C. – Investing is a focus of our Business in the Beltway coverage on Forbes.com. The proposition is straightforward–what goes on in Washington has ramifications on Wall Street, for good or ill. So we regularly serve up ideas on publicly traded companies that could get a lift from policy action, procurement or crack lobbying squads.

In 2007, this author wrote 23 stories with a view toward the Beltway-minded investor. On average, stocks highlighted in those stories show an average total return of 11%, using prices from the date of publication through market close on Dec. 13, vs. a return of 3% for the S&P 500 during equivalent time periods.

The usual caveats apply. That 11% return for these Beltway stocks is overstated by at least a couple of percentage points, since it doesn’t factor in trading expenses. Also, we’ll note that most folks should think about owning individual stocks for longer than one year.

Nevertheless, December is a time for retrospectives. It’s also a chance for active investors to think about either taking profits or dumping stinkers to harvest a capital loss.

Full story at Forbes.com

True Believer Stocks

We call it love only one, our contest pitting 17 financial pros against the S&P 500 on a single stock call. We have a dozen bulls and five bears.

The 12 months ended Oct. 31 were great for both sets. Our 12 long picks delivered an average price increase of 30%, 18 percentage points ahead of the S&P 500. Four of the five short recommendations finished the period deep in the red; the five averaged a 21% loss.

Paul Noglows, research director at Lazard (nyse: LAZ – news – people ) Capital Markets, smacked a home run for last year’s bulls. A Love Only One newcomer in 2006, he went for Deckers Outdoor (nasdaq: DECK – news – people ), an idea supplied to Noglows by Lazard retail analyst Todd Slater. Deckers, which makes footwear (Teva, Ugg) and keeps beating earnings forecasts, rose 163%.

For 2008 Noglows goes with another Slater recommendation and picks Endeavor Acquisition (amex: EDA – news – people ), a holding company poised to acquire American Apparel of Los Angeles. Noglows believes the deal will close and that American Apparel, whose name Endeavor will assume once the acquisition is complete, is a company worth buying. A vertically integrated purveyor of casual wear like T shirts and underwear, American Apparel had 2006 sales of $265 million. Noglows expects revenues to hit $340 million this year and $1 billion by 2010.

Full story at Forbes.com

Carbon Emissions: The Next Sarbox

Washington, D.C. – A modest crowd of 50 or so gathered Wednesday in Washington, D.C., for a conference on global warming. The event, organized by a fledgling trade association called the Carbon Management Council, contemplated impacts on business as governments seek to check global warming with restrictions on carbon emissions.

The crowd may have been small, but the discussion covered the major–and relatively immediate–implications of climate change.

One of those implications: Given the emerging regulatory response to global warming, all businesses should get their ducks in a row now when it comes to keeping track of their output of carbon dioxide and other gases blamed for climate change.

“The assumption is going to be that, as an organization, you will already have your data in line,” said Jerry Schmits, a conference panelist and director of product marketing for expense-management consultancy Cadence Network. “All this is going to almost act like the next Sarbanes-Oxley.”

Full story at Forbes.com

Mobile Video Outfit Refocuses

Washington, D.C. – In early 2004, Peter Durand took the top job at Integrian, a North Carolina company specializing in mobile surveillance systems for vehicles like police cars and buses. It’s been a busy run since, with two venture funding rounds closed, three acquisitions, and a headcount that went from 12 to 200.

“This has been four years of 90 miles an hour every single day,” says Durand, 38.

Not all decisions made at 90 miles an hour turn out well. Integrian hopes one acquisition gone amiss will help another bear fruit.

Two years ago, Integrian deployed a big chunk of its venture capital to acquire publicly listed Innovonics, a $9 million (revenues) Australian developer of transit surveillance technology. The rationale behind the buy: Innovonics’ specialty in passenger rail systems and subways would complement Integrian’s strengths in camera systems for cars and buses.

“We had this goal of combining the technologies into one platform,” says Durand.

Full story at Forbes.com

Concrete Proposals

WASHINGTON, D.C. – “We have a very, very underfunded and seriously challenged transportation system in severe crisis.”

So says Peter Ruane, chief executive of the American Road and Transportation Builders Association (ARTBA), as he unveils a 70-page plan for updating legislation on federal surface transportation spending. The law–called the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU)–passed in 2005 with a $287 billion price tag. It’s set to expire two years hence.

Yes, 2009 is a way off, and it isn’t a drop-dead date. The SAFETEA law didn’t get signed until two years after its predecessor’s expiration.

Still, shareholders in companies like Caterpillar (nyse: CAT – news – people ), Deere & Company (nyse: DE – news – people ), and Vulcan Materials (nyse: VMC – news – people ) should watch the road building industry’s Washington standard bearer in the off-season: The federal government finances nearly half the country’s highway and bridge building.

Full story at Forbes.com

As The Aerospace And Defense Cycle Turns

Washington, D.C. – With third-quarter earnings season winding down, we checked in with Alex P. Hamilton, defense and aerospace analyst at New York brokerage Jesup & Lamont Securities, on his outlook and picks in two areas with very different prospects: makers of airplane equipment, and companies specializing in government technology services.

We’ll start where the bulls are running now. “Commercial aerospace has been great,” Hamilton says. “The end markets are awesome.”

Hamilton explains that the commercial aerospace business tends to have five good years followed by five bad ones. He pegs 2004 as the start of the current upswing, meaning it should run until 2009. Factor in the rollout of two jets– Boeing’s (nyse: BA – news – people ) 787 and Airbus’ A380–and the consensus thinking has the good times lasting to 2011.

As we’ve observed on occasion this year, aerospace equipment stocks have climbed along with expectations. The upward price movement gives even a bull like Hamilton pause.

“At the beginning of the cycle it was value investors,” he muses, “Now it’s momentum guys.” Also troubling are high fuel prices, the possibility that tightening credit could lead to an economic slowdown and production delays for both the 787 and A380.

The latter item doesn’t especially bother Hamilton. The delays have raised concerns, he suggests, and could dampen cash flow among certain suppliers. But they’re unlikely to sink the jet programs altogether, and they’re not enough to undo the broader aerospace recovery. “It might change the trajectory of it,” he says, “but that’s it.”

Full story at Forbes.com

Good Luck Beating SAS

Washington, D.C. – Since 1995, SAS Institute has proved itself a juggernaut on our annual tally of America’s largest privately held companies. The Cary, N.C., software concern debuted on the list 12 years ago, ranked 402 with $482 million in revenues and an employee count of 3,400. Today it claims the No. 219 spot with sales of $1.9 billion and a staff of 10,000.

Lately, SAS’ big competitors have been bulking up with a string of acquisitions in its specialty–software that helps managers pull together and analyze big chunks of data. Yet there is scant evidence that its rivals can knock SAS off its stride.

“[SAS] is a force to reckon with,” says David Hilal, an equity analyst who oversees technology research and covers 15 business-software companies for Arlington, Va., investment bank Friedman, Billings, Ramsey.

SAS’s public-sector business illustrates. Founded in 1976 by Forbes 400 member James Goodnight, SAS (pronounced “sass”) has long targeted the government customer. Today, the company draws 14% of its revenues from governments around the world, with work for U.S. federal, state and local customers set to bring in $200 million in 2007.

Full story at Forbes.com

Beltway Bet: Opnet Technologies

WASHINGTON, D.C. – In March, we suggested that the pressure on the federal government to upgrade its computer networks was a good reason for investors to get into network equipment stocks. So far, the market hasn’t proved us wrong; shares of the two companies highlighted in that story, Juniper Networks and Cisco Systems, have advanced a hearty 96% and 24%, respectively.

If you believe that the network trend still has legs, consider shares of a smaller company on the software side: Opnet Technologies (nasdaq: OPNT – news – people ). The Bethesda, Md., outfit ranks 167 on our list of America’s 200 Best Small Companies, published Thursday. A slowdown in sales has hurt the stock, but the weakness could be a buying opportunity.

In business since 1986, Opnet sells systems that help big organizations map out their networks, analyze the network interaction of different devices and applications, and troubleshoot when things crash or get sluggish. Chief Executive Marc Cohen, 44, paints his company’s offerings as indispensable.

“The lights must stay on,” he says, “and the networks must continue to hum.”

Opnet has certainly hummed in the government market. Nearly half of the $245 million (market value) company’s sales comes from big government contractors and federal agencies such as the departments of Defense, Homeland Security and State. Last August, Opnet’s user conference in Washington, D.C. drew 2,000 people.

Full story at Forbes.com

New Investing Metric: Red Tape

Washington, D.C. – Just over a year ago, as we’ve done for the past several years, we did a stock search with the aid of an annual World Bank survey on the best countries to do business. Stocks featured in that story averaged a 48% total return through Monday’s market close, versus gains of 19% and 27%, respectively, for the S&P 500 and an exchange-traded fund tracking Morgan Stanley Capital International’s Europe, Australasia, and Far East index.

The idea here is simple: Investors looking to place bets abroad should stick to countries that don’t tie up business folk with red tape. Past performance doesn’t guarantee anything, but given the results from last year’s story, we’re giving this screen another go.

Full story at Forbes.com

The Energy Consultant Who Does It All

Washington, D.C. – Like any big industry, energy has an array of trade groups representing its various sectors and sub-sectors inside the Beltway. Biofuels, coal, gas, oil, nukes, solar, wind, utilities of various stripes: They all field associations that jostle for position on energy policy.

Since 1981, Jeffrey Serfass has made a living in this milieu. The approach behind his $2 million (revenues) Washington consultancy: connect the dots.

“We have a significant network of companies and spheres of knowledge that allow us to uniquely bridge the entire gamut from fossil fuels to renewable energy,” says Serfass, 62.

Suitably, Serfass’ company carries a rather non-descript name: Technology Transition Corporation. In addition to corporate and government consulting, the 12-person, for-profit outfit manages trade groups, notably the National Hydrogen Association and the internationally focused Partnership for Advancing the Transition to Hydrogen. Serfass heads both organizations.

Full story at Forbes.com