Two Biometric Stocks Ripe for a Takeover

By Louis Basenese (Wall Street Daily | Original Link)

Last week, I shared why I’m convinced security is the biggest roadblock to consumers embracing mobile payment technologies en masse. I went on to say that biometric identity technologies are the solution.

It took all of, oh, three seconds before one reader balked, saying, “The market’s not ready for biometrics yet!”

“Yet” is relative, my friend. In this case, “yet” could come very soon. And so could the profits.

Here’s why…

The Trend is Our Friend

The latest Hype Cycle report from Gartner Research pegs biometrics entering primetime in as little as two years. The report even mentions biometric authentication as an enabling technology for a “world in which every transaction is an electronic one.” Or, like I said, we can’t have one without the other.

Now, if you’re reluctant to believe top-tier research firms and lowly Wall Street analysts that say biometrics are, indeed, necessary for the mobile payment boom, just look at what industry insiders are doing. They’re gobbling up pure-play biometric companies.

• In August 2010, 3M Co. (NYSE: MMM) plunked down almost $1 billion to acquire Cogent. Cogent’s a leader in finger, palm, face and iris biometric systems for governments, law enforcement agencies and commercial enterprises.
• The very next month, France-based, Safran, spent $1.6 billion to buy L-1 Identity Solutions, which was originally formed via the merger of two other biometrics companies in 2006 (Viisage Technology and Identix).
• Then, most recently, Apple (Nasdaq: AAPL) offered up $356 million forAuthenTec (Nasdaq: AUTH), handing shareholders of the tiny Florida-based company a 57% premium.

Do you see a trend forming here? I do. That means we should be on the lookout for other pure-play biometric stocks. The good news? We don’t have to look long.

Aside from a handful of penny stocks that trade by appointment only, there are only two pure plays left in the market: Aware (Nasdaq: AWRE) and ImageWare Systems (OTC: IWSY).

I’ve recommended both stocks in my VIP advisory, MicroCap Tech Trader. (We hit our stop on Aware for a 60% gain, and we’re currently sitting on an unrealized gain of 48% in ImageWare.)

Of the two, I’m convinced ImageWare represents the most attractive investment. Both on a standalone basis and because of its takeover potential.

Here are four reasons why…

• Multi-Modal: ImageWare’s software supports multiple biometric types: finger, face, iris, hand geometry, palm, signature, DNA, voice, 3-D face and retina. (In contrast, Aware supports fingerprint, facial and iris modalities.) Plus, it can seamlessly integrate more than one biometric at a time, thereby increasing reliability and accuracy.
• Agnostic and Open-Source: The company’s solutions can be incorporated into almost any type of hardware or software application. Currently, ImageWare supports over 100 hardware capture devices and over 70 biometric algorithms (and counting).
• Anonymous Matching: The company’s pending patent applications are related to providing biometric matching for identity verification, while protecting the privacy of the individual. As ImageWare states in its SEC filings, “It is the company’s belief that such technology will be critical to providing biometric management solutions for the consumer market where privacy protection has been a historical issue and barrier to biometric adoption.” I couldn’t agree more. I want convenience, but not at the expense of sacrificing privacy.
• All About Mobile: As I’ve said countless times before, “The exploding use of mobile devices promises to be the fastest-growing – and possibly biggest technological trend ever.” ImageWare’s wisely positioning its technologies to capitalize on it, too. Case in point: The company recently acquired four patents in the field of mobile communications.

As management notes, the deal “will allow us to accelerate our entry into the commercial sector and provide industry-leading solutions to better secure mobile-based transactions… particularly in the healthcare and financial transaction markets.”

Bottom line: The conservative investor interested in profiting from the biometrics space should consider taking a small position in each company. The aggressive investor should bet on the best of breed, ImageWare, and sit tight. The market is coming to biometrics identity solution providers sooner than most people realize.

Ahead of the tape,

Louis Basenese