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TWST: Please start with an overview of your coverage.
Mr. McIlree: We follow 18 stocks, ranging in market cap from very small,
about $20 million, to relatively large for us, about $6 billion. And for
the most part, we are looking for companies that have dual-use
technologies ' technologies that can be deployed by the Department of
Defense, homeland security markets, and commercial users. For the most
part, the companies that we focus on are oriented toward communications
equipment, but increasingly, we are looking at companies that supply
members of the intelligence community, as well as companies that are
working on location and sensor technologies. TWST: Why the emphasis on this dual use?
Mr. McIlree: A few years ago, there was little in the way of growth in
the commercial markets. Five years ago, we had just come off of the
Internet bubble, which had driven a lot of investment in communications
technology, among other things. So there was a great deal of
overcapacity, both in the networks and in the equipment market for those
companies that were just focused solely on the commercial area. At the
same time, the defense markets had just started to grow at above average
rates. So, on a relative basis, companies that were supplying the
Defense Department were growing at a faster rate. Now, I wish that I
were smart enough to have seen this whole scenario play out in full, but
the reality of what happened was that I was following a few companies at
that time that had been considered stodgy because they had supplied the
Defense Department. Harris Corp. (HRS) is a good example of that. Signal
Technology, which has subsequently been taken over, is another example.
These companies had communications technology, supplying both commercial
and defense customers, and when the bubble burst, these two companies
were actually doing quite well, due to their exposure to the defense
market. So when we looked at our universe and saw what was working and
what was not working, we saw that these companies were working, and we
said, 'Well, maybe there is something going on here,' and that's when we
started building a universe more oriented toward this dual-use
technology motif.
Tickers included in this excerpt: HRS, KEYW, LLL, NOC, OSI:TSX
For more information call (212) 952 7433. The
Wall Street Transcript does not endorse any of the comments made by interviewees, and does
not make stock recommendations.
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