More Phones to Tap?

Before September 11, Applied Signal Technology (APSG ) was a little-known company whose stock hardly moved. Having "technology" in its name became a burden when the tech bubble burst. But lately, Applied, a maker of signal-processing gear used by the FBI, CIA, and other surveillance agencies, has zoomed--from 5.19 a share on Sept. 10, 2001, to 12.80 on June 10. The stock has since eased--to 10.21 on Aug. 21--which prompted fresh buying from certain fans, including some who already own shares. "Applied is a pure play in intelligence gathering," says Tim Hasara of Kennedy Capital Management in St. Louis, which owns 7% of the stock.

Allied makes gear to bug phones, including cellular sets, and radio or satellite communications. The company has seen a "significant jump" in orders and new interest in its products since September 11, says Hasara, who sees the stock hitting 18 to 20 in a year. In mid-July, the company reported $18 million in orders during May and June, vs. $18 million in all of the previous quarter. Applied is not only a play on the spying game but also "a turnaround bet," says Hasara. Last year, Allied was losing money and laying off people. Now, it is rehiring--and started making money in the first half of fiscal 2002, ending Oct. 31. Hasara figures it will earn 45 cents a share in 2002, on sales of $80 million, and 75 cents in 2003 on $100 million, vs. a loss of $1.31 in 2001. In 2004, Hasara sees earnings of $1 on $125 million. Applied CEO Gary Yancey believes the rise in orders will continue. Applied may see a big order from the newly created Homeland Security Dept., says Hasara.

By Gene G. Marcial

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