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Two analyst and top management from eight sector firms examine the security products & services sector in this special 38-page Security Products & Services issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info516.htm.

TWST: Of Armor, Kroll and Checkpoint, who are their customers? What do they produce?

Mr. Barry: Let's look at the barcode companies first. As you might imagine, the barcode, having had its beginnings in retailing, still draws a substantial amount of its revenues from that. Symbol Technologies, for example, which essentially developed the eye of the barcode — the barcode scan engine as it is called — still derives roughly 50% of its revenues from retailing, involving essentially a Who’s Who in retailing. A growing number of vertical markets, including the supply chain, manufacturing, health care, education, logistics, and the government (a notable portion of which traces to the postal service for tracking and tracing), account for the balance of revenues. Zebra Technologies is something of a direct counterpart to Symbol as the leading company in the barcode printing space, and has parallel vertical market exposure. Armor Holdings provides an extensive array of duty gear for law enforcement agencies, including everything from holsters and utility belts to pepper spray and ballistic-resistant vests. It also provides a variety of consultative services to such clients as the Department of State and a variety of major oil companies, especially in so-called “fright markets.” The company excels in some of the more economically and politically unstable areas of the world.

TWST: What’s the rationale behind your top choices?

Mr. Barry: Regarding Armor Holdings (NYSE:AH), we view them as well-balanced, representing a three-legged stool in this industry, drawing from armor plating on one side to body armor on the other, with a services component as well. So regardless of which way the security appropriations go, this company is likely to be in their path. On the vehicle armoring side, Armor Holdings derives about 40% of those revenues from the military, and the primary driver there is the HMMWV (Humvee), the modern Jeep, if you will — the ground vehicle of choice for combat such as we find ourselves in today. So appropriations from the military will probably be advantageous in that regard. On the other side of the house, if the sky marshall program takes on measurable proportions, Armor’s presence as a supplier of ballistic vests and duty gear can’t help but benefit. On the services side, the company prides humanitarian mine clearing services. Afghanistan, as we all know, is probably the country most infested with landmines in the world. Once the battleground quiets, Armor Holdings has the know-how and the wherewithal to be one of the beneficiaries de-mining the area.

TWST: How are you advising investors to approach the group today?

Mr. Barry: Cautiously and selectively. Essentially, the security space is still sorting itself out from top to bottom — from the priorities established by government agencies that will fund a lot of these programs through to the individual companies as they jockey for position in the sector. So one had best look for companies that are already reasonably well established — whether measured by market penetration, revenue level, profitability or return on investment. The more criteria one can satisfy, the lower the investment risk

TWST: What seems to be on the minds of investors? What are they asking you?

Mr. Barry: Either consciously or not, investors are concerned with the risk/reward equation. Many of these stocks, as we’ve discussed today, are selling at considerable multiples of earnings — if they have earnings! Thus, the growth opportunity had better be substantial if those valuations are to be justified. Some stock prices are clearly well ahead of their fundamentals. Absent a long time horizon, investors should remain very circumspect. So in the near term, perhaps it would be more prudent to emphasize the risk side of the equation when assessing new investments in security products and services.

This special issue includes:

1) Outlook for Security Stocks - In an in-depth (4,000 words) Analyst Interview, Jeffrey T. Kessler, Senior Vice President at Lehman Brothers, examines the outlook for the sector including and shares specific stock recommendations.

2) Security Products & Services - In an in-depth (2,600 words) Analyst Interview, Peter J. Barry, Managing Director for Small Companies at Bear, Stearns & Company, examines the outlook for the sector including and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of eight sector firms examine the outlook for their firm and the sector.