Government spying: Great for business
Today's Financial News - Posted May 11, 2009
The government is increasing its spy spending by record amounts. It may be bad news for Big Brother conspirators, but it is great news for savvy investors.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): With all the anti-war rhetoric surrounding Washington, it may feel odd to dig into a defense-sector company. But oddly enough, spending on tanks and ballistics may be down, but so-called “spy” spending is on the rise. The Pentagon cannot get enough of the stuff.
According to a recent report, Washington plans on spending a record-breaking $50 billion on “classified” programs over the next twelve months. The unprecedented figure is more than the entire defense budget for countries like England or Japan.
The news may be bad for Americans that wanted to keep what is left of their liberties, but it is downright fantastic for the handful of companies with the technology to make it happen.
I recently wrote about one booming business ready to make its public-trading debut, Digital Globe. The satellite-image company’s big week is here. It will begin trading under the ticker symbol “DGI” on Thursday. Expect a big IPO.
The company is one half of a duopolistic satellite imaging industry. GeoEye (NASDAQ:GEOY) has been trading publicly since 2004. Its shares have nearly doubled in price since Obama moved to Pennsylvania Avenue.
Thanks, Chief
If Digital Globe’s competitor’s recent share price action is indicative of what’s to come, the Colorado-based company should have a lucrative week. After all, this is only the second opportunity Wall Street has had to get in on the surge in government spending.
As mentioned, there are just two companies with the satellites, the technology and the capital needed to give Uncle Sam the satellite shots he wants. And the government is not alone with its demand. All sorts of companies, from Google to airports, are using Digital Globe’s technology.
Best of all, a host of new satellites or competitors will not be emerging anytime soon. This is the ultimate high-barrier-to-entry industry.
Whenever demand is on the rise and supply is static, magical things happen to share prices. They go up. The power is in the hands of the supplier and margins are increasing with little elasticity.
This week’s Digital Globe IPO may be the biggest of the year. It will be worth watching, even if it is from 120,000 feet away.
Next Article: TFN Reader Grapevine: 60%-plus just today—will the spike have legs?
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