Sensors, Spooks And Titanium

As with all Forbes company lists, our 2007 list of the 100 Best Mid-Cap Stocks In America has its share of outfits that should interest investors or others looking at Washington, D.C., from a business perspective. The table below lists seven.

Bargain hunters, don’t get too excited. These companies hail from the defense and aerospace sector, which has enjoyed a terrific run over the past four years. Thus, the stocks look expensive relative to valuation history and, with two exceptions, projected growth rates.

That will not stop us, however, from sticking our necks out and tagging a couple of these stocks as attractive.

Full story at Forbes.com

Transformer

Washington, D.C. – Terry M. Ryan has made a career of getting big Beltway organizations through moments of change.

In 1991, after 10 years in the U.S. military, he was hired by the Senate Select Committee on Intelligence to advise it on adjusting to a post-Cold War world. Later, he helped set up a new Department of Defense office aimed at rejiggering airborne reconnaissance to use more unmanned aircraft. When he went to the private sector in the mid-’90s, he took the top job at defense engineering concern Adroit Systems. In three years, he presided over a tripling in Adroit’s sales, to $43 million, and its acquisition by SRA International in 2003.

Now a senior vice president at Mercury Computer Systems (nasdaq: MRCY – news – people ), Ryan, 48, must pull another rabbit out of the hat. Headquartered in Chelmsford, Mass., Mercury makes systems for processing high-volume data. Among its specialties: software that can convert big data sets into 3-D images, and systems that pull together information from different kinds of computer chips (digital signal processors, graphics processors and so on). Just under half the company’s $224 million in fiscal 2007 sales came from defense customers, primarily big contractors like Lockheed Martin (nyse: LMT – news – people ), Northrop Grumman (nyse: NOC – news – people ), and Raytheon (nyse: RTN – news – people ).

Yet despite those companies’ booming fortunes, Mercury’s own defense business sagged 15% for the year ended in June, a decline the company blamed in part on federal funding shifting to “more immediate” needs. (Translation: Iraq.)

Full story at Forbes.com

Getting Burned

Washington, D.C. – As the table below indicates, Wall Street has cooled on the coal business lately. Particularly hard hit, in share price terms at least, have been two concerns, Headwaters and Rentech, specializing in turning coal into liquid fuel.

At a Wednesday hearing on Capitol Hill, those two companies pleaded for Washington to nurture the fledgling coal-to-liquid industry.

“Oil price volatility continues to discourage potential [coal-to-liquid] investors,” Robert Freerks, Rentech’s (amex: RTK – news – people ) director of product development, told the House Committee on Science and Technology’s Subcommittee on Energy and Environment. “Congress should enact policy to help reduce risk and encourage investment in these plants.”

“Until we get the first few plants built, there’s tremendous resistance from the private capital market,” agreed John Ward, Headwaters’ (nyse: HW – news – people ) vice president for marketing and government affairs (note: half of Headwaters’ sales come from residential construction materials).

As we’ve observed elsewhere, (See: “Its Not Easy Being Green”], Washington tends to stand by long-shot energy technologies, even after the stock market has given them the thumbs-down. But the members at today’s hearing weren’t an easy audience.

Full story at Forbes.com

Beltway Bet: RightNow Technologies

Washington, D.C. – RightNow Technologies went public in August 2004. Within months, its shares rose 174%, to $21, carried upward by investor enthusiasm for the Bozeman, Mont., company’s business model. Like Salesforce.com, RightNow aimed to sell its customer relationship management (CRM) software as a low-maintenance, Web-based service, not a shrink-wrapped product.

That enthusiasm has since cooled; RightNow Technologies (nasdaq: RNOW – news – people ) stock is off 30% from its 2004 high. But Chief Executive Greg R. Gianforte still relishes tossing rocks at the way the software has been traditionally sold to big business and government.

“The traditional model of enterprise software has failed the customer,” he declares. “It has involved somebody writing a really big check up front, then a truck backing up and dumping a bunch of software, then somebody showing up with a busload of consultants who camp in your parking lot for two years.”

Gianforte says RightNow gets the job done faster. “Our typical deployment takes about 60 days to stand up,” he says.

One place Gianforte’s approach seems to be gaining traction: the U.S. federal government.

Full story at Forbes.com

Beltway Index: Several Changes, One Pick

Washington, D.C. – This week, we have updated the list of companies that make up the Forbes Beltway Index. To reflect new government contracting information, we have removed certain companies from the index, and added others. At least one of the newcomers, noted below, looks like an interesting investment prospect.

Full story at Forbes.com

HP Rides The Innovation Wave In Washington

WASHINGTON, D.C. – Last week, Hewlett-Packard savored some legislative good news when President Bush signed a bill boosting federal subsidies for research and education in science and math. The Palo Alto, Calif., computer giant, which in 2006 spent $3.6 billion on research and development, has been one of the louder voices calling for the U.S. government to step up its role in fostering tech innovation.

“We’re very pleased with the commitment to put more money into research and to contribute math and science scholarship,” says Gary Fazzino, Hewlett Packard’s (nyse: HPQ) vice president for government and public affairs. “These are victories.”

Now, Fazzino and HP’s six-person government affairs outpost in Washington hope that momentum on innovation will carry along two other top priorities: patent reform and an extension of the research and development tax credit. While both items enjoy decent support inside the Beltway, they’ll need tending to, given the prospect of a hectic autumn on Capitol Hill.

“There could be a number of landmines along the way,” says David Isaacs, who runs HP’s public policy efforts in Washington.

Full story at Forbes.com

Tiny Battery, Big Biz

Washington, D.C. – In early 2008, Littleton, Colo.’s Infinite Power Solutions plans to begin high-volume production of batteries not much bigger than postage stamps. Like players before kickoff, execs at Infinite, now 25 employees strong, are in full chest-pounding mode.

“Our flexible, rechargeable, thin-film batteries will boldly go where no batteries have gone before,” says Timothy Bradow, Infinite’s vice president for marketing and business development.

Key to the boldness: the defense and intelligence market. Bradow and Chief Executive Raymond Johnson believe certain federal customers will pay $50 to $100 per battery. They and their investors have maneuvered to get Infinite up and running with a surge of public sector demand.

So what’s a thin-film battery? Batteries, or devices that convert chemical energy to electrical energy, are essentially three items: a positive electrode, a negative electrode and an electrolyte that separates the two. In the lithium-ion batteries that power cellphones and laptops, the electrolyte is a liquid or a polymer gel.

Thin-film batteries, by contrast, use a glassy, inorganic solid for an electrolyte. The technology was pioneered in the 1970s at Stanford University, developed subsequently by the Department of Energy at its Oak Ridge National Laboratory, then released for commercial use starting in the 1990s.

Full story at Forbes.com

XM Satellite Pitches Homeland Security: Is It Just Talk?

WASHINGTON, D.C. – Inside XM Satellite Radio’s Washington headquarters, the walls are adorned with the likes of Snoop Dogg, Coldplay and Clint Black. Along a hallway on the second floor, overhead units pump music down to discrete listening areas marked by white circles on the floor.

But for Roderick MacKenzie, XM’s vice president for advanced applications and services, the mission goes well beyond music.

MacKenzie’s job is to dream up new ways to use XM’s two satellites and 800 terrestrial repeaters that boost the satellite signals on the ground. The 45-year-old Briton has a well-honed sales pitch, one that has worked in getting XM into cars from automakers such as Honda Motor (nyse: HMC – news – people ) and Toyota Motor (nyse: TM – news – people ). That pitch also seems to be resonating with the federal government and the big contractors that cater to it.

“We tend to think of our network as a national asset,” says MacKenzie.

MacKenzie’s line is this: XM’s system beats other technologies as a means of delivering vital information. Cellular falls short because its coverage is spotty in remote areas. By contrast, XM’s satellites beam signal to the entire upper 48 states, including 100 miles off the coasts, and to densely populated parts of Canada.

But satellites working alone have trouble sending information into urban areas, because of the buildings and other obstructions. That where XM’s 800 repeaters come in.

Given XM’s access to both urban and rural areas, MacKenzie sees applications for emergency response and safety. One example: XM already is working with the Federal Emergency Management Agency (FEMA) to update the delivery system that distributes the presidential message following a serious disaster or crisis.

“We’ve had a lot of conversations with FEMA, DHS and DOT,” says Mackenzie. “They’ve been extraordinarily positive.”

Full story at Forbes.com

In The Beltway Orbit: GeoEye

Washington, D.C. – Companies that sell technology to the U.S. government are more attractive to investors if their products have commercial applications as well. Examples we’ve cited recently: Ceradyne and Flir Systems.

Dulles, Va.’s GeoEye is another one in this category and its shares look modestly priced. But be careful–one technical glitch and this satellite imagery stock could fall out of orbit.

GeoEye captures, manages and sells high-resolution satellite imagery, the kind found on Yahoo! Maps or Microsoft’s Virtual Earth. The company has $158 million in trailing 12 month sales, a fleet of two satellites and two airplanes, and an archive of imagery covering 300 million square kilometers.

Its next satellite, GeoEye-1, is scheduled to launch sometime later this year. The 4,310-pound spacecraft will make 12 to 13 orbits per day, collecting daily up to 350,000 square kilometers (the size of Texas) worth of color imagery at a 16-inch or 0.41-meters ground resolution. Translated to English, that means that in the images you can see the lines on a parking lot. (No, the satellite can’t parallel park for you.)

But the upcoming launch is a high-stakes event for GeoEye, which only gets one shot to do it right. “After ‘3-2-1-liftoff,’ there’s no chance to go back and fix anything,” says Mark Brender, a GeoEye spokesman and its vice president for marketing.

The consequences of a botched launch? In September 2001, GeoEye’s predecessor company, Orbimage, put up a satellite that failed to make it into orbit. The company filed for bankruptcy in April 2002, and its common shareholders got wiped out.

Full story at Forbes.com

A Hard Look At Hard Assets

Times are flush in the Canadian province of Saskatchewan. Dare we call it a boom? “That’s the way we’ve been describing it,” says Maynard Sonntag, Saskatchewan’s Minister of Industry & Resources. “Absolutely.”

Sonntag ticks off the stats. Saskatchewan, which provides the world with a quarter of its uranium and sells the U.S. more oil than Kuwait, is one of two Canadian provinces to increase its gross domestic product for four years straight. Since 2002 spending on uranium exploration has jumped tenfold to $280 million annually. “We have more jobs than we have population,” he says.

The recent performance of non-U.S. resources stocks such as energy, construction materials and precious metals reflects the go-go days in the resource-rich north. An index compiled by FactSet Research Systems, for example, shows that shares of nonenergy mineral companies outside the U.S. have gained an aggregate 66% over the last year.

Buyers beware. We looked at non-U.S. natural resources companies with U.S.-listed shares and market values over $10 billion. Of the 80 that qualified, 30 carried multiples of book value, earnings and sales all in excess of five-year averages. Only four stocks passed a simple value screen of price-to-sales below their five-year average.

Full story at Forbes.com