Playing the Political Pandemonium

Several weeks back we mentioned the ‘sin’ plays, with defense being one sector to get some gains out of this summer.

This could accelerate with all of the turmoil going on. In the eternal inferno of the Middle East we have even higher than normal tensions between Israel and its neighbors in Gaza and the West Bank over teenage murders and kidnappings. In Iraq we are close to having a terrorist state with Isis at the helm. Closer to home, we have a crisis at our border with Mexico with a flood of illegal aliens. While the violence and chaos is not something we condone, the objective is to find some ways to benefit in your satellite accounts.

Way back in April 2013 we featured Innovative Solutions & Support, Inc. (NASDAQ – ISSC - $7.07) in the Market Monitor. The stock took off to over the $9 price level in less than a month at that time and has been up and down since, currently right at the 30% increase in price level mark since our first article. We believe the stock will benefit from an accumulation in defense given some of the political factors mentioned above.

The Company is a systems integrator that designs, manufactures, sells, and services flight guidance and cockpit display systems to a broad customer base that includes the U.S. Department of Defense. There is no telling what kind of involvement the U.S. military could have in the areas above, but at a minimum air strikes and surveillance would seem a forthcoming response. This factor could lead to an influx of capital to ISSC.

Looking at our P/E and growth metrics the stock is an attractive buy. The trailing versus the forward 12-month P/E are 56 versus 16 on 41% growth forecast for FY2014 and 14% growth for FY2014 in top line revenue. The 5-year PEG is a low of 1.7. Another good sign is the short float of 5%.

ISSC is very bullish in the short to intermediate term in the Daily Moving Average technical analysis metric. We think the stock is a good one to pile on and could climb another 25% be the end of 3Q, market declines notwithstanding.

Have a great day!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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