[Beginning of Cramer's verbatim comments for this segment...]

Jim:      Every day this week, I've been elaborating on a major long-term theme that you can go back to, whenever the market takes a hit... yeah, a little one like today, maybe you can take a look. Why? Because the theme's always going to be around for a very long time...

And what is the theme that's dominated?... It's homeland security... You see, the bad guys aren't going away, and neither is the funding... unless everyone in Washington decides that what they most want to do is not get re-elected...

So far, I've given you a lot of different stocks. Let's go over it, because it's Friday...

American Science & Engineering Inc. (ASEI) for bomb detecting... that's the X-Ray machine company...

ArcSight (ARST) for cyber security. I was hacked this week at my brokerage account. Those guys are needed to stop that... yeah, I was hacked.

NICE Systems (NICE) for data, video and voice analytics.

Applied Signal (APSG) for that cool signals intelligence that we watch that the military uses.

And then FLIR (FLIR) for thermal imaging...

And, today, I've got one more homeland security angle. And this is one that you've asked for all week, so we're giving you not just one, but two...

It's biometrics...

Why biometrics, other than the fact that it's the coolest one of the whole homeland securities that we've been talking about?... These are the technologies that help us identify the bad guys, based on physical traits like fingerprints, their faces and their eyes... just like (in the movie clip he then showed), "Demolition Man"... take a look...

The authorities use these technologies to identify terrorists and restrict access to protected areas. Biometrics is a $2.5 billion market, growing at 19% through 2017, and you know that growth is like crack to a lot of money managers on Wall Street. They jump all over stocks with supercharged growth as long as they can find them, especially when they don't need a strong economy...

Alright, our two biometrics plays...

L-1 Identity Solutions Inc. (ID), one that I know you love because we get a lot of email on it... $6 and change. The stock's been there for a while...

And Cogent Inc. (COGT), a $9 and change stock. Cogent is a pure play on fingerprint biometrics technology and their bread and butter is the U.S. Visit Program, which makes up half the company's revenues and allows us to verify the identities of international travelers. Cogent has a history of being a real innovator in this space. Their systems are thought to be able to match fingerprints more accurately and more quickly than anyone else's. It's the best of breed fingerprint play.

How about ID?...

This is not to be confused with L-3 Communications (LLL), but it was founded by the same guy, so you know you're getting seasoned management. This is more of a hybrid play on biometrics and other security technologies... The company's biometrics business goes beyond fingerprints. They can identify people, based on their faces or their irises or their eyes... Biometrics makes up about 22% of L-1's sales... Then L-1 has a much more boring secured credentialing business that produces IDs that are difficult to copy... Hey, take it where you can get it... This is important when it comes to homeland security, but it's not exactly sexy... certainly not Jack Bauer stuff, or even Chloe stuff (referencing the TV show, "24"), or even James Bond-style spy gear... but it's consistent business, and L-1 is one of the largest producers of driver's licenses in the U.S.

Now these are both speculative stocks... both are low-dollar amount stocks without a large amount of commercial applications and adoption so far, meaning I think they are still very dependent on government contracts, but I know what you want... I'm giving you these to do your homework on the weekend about... but I still think the business potential is there at both companies.

L-1 makes a biometrics recognition device. It's called the "HIIDE"... that's being used to help identify insurgents in Iraq and Afganistan... big potential there. The company recently won a $6.2 million follow-on order... yeah, these are smaller stocks with smaller dollar amounts... This system is being tested by other countries as well. Currently, L-1 has a backlog of $1.1 billion... that's twice the size of the company... We always like to see backlogs that are twice the size of the company...

Right now, L-1 is bidding on a contract for New York driver's licenses, and one for Mexico's national ID system... $300-400 million in opportunities come from Latin America... as well as a partnership with TTM in India to provide biometrics over there. Each time they get one of these contracts, the stock's going to jump.

The case for Cogent...

The main thing is the U.S. Visit Program. Right now, there are 130 million enrolled users, compared to 500 million total foreign visitors, so there's still plenty of opportunity for growth. On the other hand, there's a real fear that the renewed contract could go to a competitor... although that worry, I think, already is priced into the stock. I think Cogent keeps the business, as their technology is already integrated into the Department of Homeland Security's systems... It's unlikely it would be cost effective to switch to an entirely new system.

Hey, Cogent also has some big orders lately. They won a contract to supply a fingerprint identification system to the entire state of Ohio. I didn't know they were making it tough to get in and out of the Buckeye state... And they also won one for the U.S. Census. The company also won three other substantial contracts... Army Biometrics Operations and Support Services... that's an unrestricted program... one with the U.K. post office for $60 million... a third with the Belgian Police... These guys are really winning a lot of orders, and none of these three are included in 2009 guidance. And Cogent could win a potentially... a big $75 million contract with U.K. Policy biometric kits, ahead of the 2012 Olympics.

Balance sheets...

Cogent's clean. Well, it's cleaner... $530 million in cash. That's $5.80 of cash per share. And debt... think about that... let's see, it's more than half the value of the company... It's not even a $10 stock. It's pretty interesting, huh?... That gives Cogent a pretty nice forward (multiple) around 6 (times forward earnings)...

L-1? Not as good. $16.9 in cash, $463 million in debt... but expects significant cash flows in the 2nd half of between $50-55 million... and the company plans to accelerate its repayment of debt next year, so I'm not super worried, although you've got to keep your eye on it.

Both stocks trade at roughly the same valuation... 18 times earnings. Each has about a 20% growth rate, so they're not expensive... I think there could be some serious upside for both stocks...

The question is, do you want a pure biometrics play?... That's Cogent, with the $6 in cash (per share)... Or a hybrid play... that gives you exposure to other homeland security technologies?... That's L-1. And how much does the balance sheet worry you? Do you feel safe and comfortable with Cogent's cash floor?... Or are you willing to take a chance on L-1's mountain of debt? The choice is yours.

I like biometrics, and the bottom line is...

▼   ▼   ▼   ▼   ▼

The Bottom Line:     Biometrics is one of the fastest-growing areas of homeland security, and you've got your choice of speculative ways to play it... Cogent Inc. (COGT) and L-1 Identity Solutions Inc. (ID). Just remember, limit orders, buy in increments, take some time... look at them this weekend. These are the most speculative of the ones that I mentioned all week. These stocks are not going anywhere immediately... no big contracts expected next week. These are long-term stories. Take your time... no hurry... unless you're trying to catch the bad guys.

 

[verbatim recap]

[end of segment]

Read Jim's next Segment here  

Market Results today: Dow:  - 67 Nasdaq:  - 16 S&P 500:  - 9 1 2 4 5 6 See all of tonight's stocks mentioned on Yahoo! Finance, here...