Biometrics may sound like technical jargon or something out of a science-fiction movie. But they are actually a key field, and one that will have an increasingly significant impact on our investments in the 2020s.
Why are biometrics stocks so important? InvestorPlace spoke with New York University’s Vasant Dhar, a professor of information systems, who described the changes that artificial intelligence will bring over the next decade.
Dhar said that AI will change “virtually every area. But the biggest impact [will] be in problems involving perception, that is, vision, language, sounds and movement. Such data is already being collected by satellites, cameras, cars, and ground sensors. Much of this data will be used for prediction.”
It’s not novel to collect this data, and applications have already put it to rudimentary use in recent years. But we’re now on the threshold of a major leap forward, where our body and facial information can be used as identification, as a payment method and much more.
The companies that are able to harness this data and channel it into commercial use will be big winners going forward. These seven biometrics stocks are on the leading edge of this technological shift.
Aware (AWRE) is a core selection for anyone wanting to build out a biometrics portfolio. The firm offers governments software solutions, primarily ones that serve identification-based security functions. Think about applications that help with secure border crossings and citizen tracking. On top of that, Aware pulled in a large contract with an emerging market bank not that long ago, showings its ability to move beyond merely government-based business.
One thing to keep in mind is that Aware — and other biometrics providers that have government contracts — risk getting involved in thorny ethical questions. Aware has done business with Saudi Arabia, for example, which has a controversial track record on human rights. Vasant Dhar addressed the risks that companies like Aware will take on in the course of doing business, and he said:
“Facial recognition is here to stay since the destructive potential by individuals is huge at the current time. It also increases efficiency and accuracy — increasingly, airlines are scanning faces instead of boarding cards. It is a powerful technology to discourage bad actors such as terrorism, but it can also be abused by rogue actors and non democratic states to curb freedom and invasion of privacy.”
That said, with a revolutionary technology like this, there will be risks that come alongside the upside. Keep those in mind. But don’t let it dissuade you from pursuing investments in the sector altogether. Companies like Aware have huge potential in future years as businesses and governments around the world upgrade their security standards.
International Business Machines
It’s easy to criticize International Business Machines (IBM) nowadays. The company has missed out on a lot of technological changes over the years. As a result, its revenues have declined markedly over the past decade, and many investors think IBM’s best days are behind it. But don’t count Big Blue out yet. Not only is it making a major play in the cloud with its Red Hat acquisition, but it has a ton of other innovative technologies as well.
IBM has spent heavily on research and development, and as a result has been the country’s leading patent recipient for 27 years in a row. For 2019, it pulled in more than 9,000 new patents. IBM has focused much of this research in artificial intelligence. Of course, the company’s Watson grabs tons of headlines with its high-profile appearances. But don’t overlook IBM Verify.
IBM Verify takes advantage of advances in AI to be able to provide strong second-layer security. Increasingly, passwords aren’t secure enough on their own. And many forms of two-step verification are clunky or time-consuming. IBM’s fingerprint-based approach simplifies that process for many users, and IBM is building out bigger biometrics solutions for corporate and government use going forward.
A nice thing for investors is that due to IBM’s tarnished reputation, the stock has been cheap for years now, and offers a high dividend yield. You get a reasonably priced stock with income, and lots of paths to a better stock price if the company’s research efforts in biometrics hit pay dirt.
Alphabet (GOOG, GOOGL) is a key player in the biometrics space. From Google’s artificial intelligence research to its biometrics API for Android, this company is central to the future of the sector.
And yet, despite that leadership position, Alphabet is urging restraint. CEO Sundar Pichai urged regulators last week to put a moratorium on facial recognition technology until tech leaders can figure out some way to deal with the problem of deep-fake videos. In addition, Pichai suggested that governments may want to regulate the use of artificial intelligence.
This is interesting from an investor’s viewpoint. The company is likely leaving some money on the table by urging slower adoption of these technologies. On the other hand, Google has arguably strayed away from its “Do no evil” motto in recent years. Taking a proactive ethical stand on AI and biometrics may help it start to repair its reputation.
My next pick is a small-capitalization stock that’s been on an absolute tear lately. Intellicheck (IDN) is a $130 million market capitalization firm that has soared from $4 per share this past fall to just over $8.30 today. Much of this run is likely on the company’s pending up-listing to the Nasdaq, which is set to occur within the next month. So exercise caution in the short run. IDN stock may be set for some near-term profit-taking once that event concludes.
Over the long haul, however, Intellicheck is a fascinating play on the biometrics space. Intellicheck offers various partners the ability to easily check and authentic key documents such as drivers’ licenses. This has a variety of applications. Intellicheck offers services for age IDs and military IDs where it’s vital that clients can sniff out forged documents. The company also offers a retail ID solution that helps companies avoid the tedious paper sign-up sheets for loyalty programs and makes sure that retailers comply with changing privacy laws.
Why buy Intellicheck right now? Its quarterly results have been amazing. Last quarter, Intellicheck grew revenue 86% year-over-year. The company’s software-as-a-service revenues in particular shot up 140%, and Wall Street absolutely loves recurring subscription income. Intellicheck isn’t profitable yet, but at that growth rate, it could hit the inflection point fairly quickly.
Like with Intellicheck, Bio-Key (BKYI) is a very small business, so keep that in mind when considering an investment. That said, if you’re looking for a pure-play stock on fingerprint identification technologies, Bio-Key could be of interest.
The company offers several software products such as its VST algorithm for turning fingerprint readings into digital templates. It also has a tool for secure management of biometric data between the cloud and local devices. The company also offers affordable (sub-$100) fingerprint-reading hardware devices. These scanners make up 25% of revenues.
Overall, the company guided full-year revenues to between $6 million and $12 million, which would be well up from 2018’s $4 million. At a market cap of $9 million, Bio-Key would be selling for just 1 times sales if it hits the midpoint of its guidance. It also expects to be cash flow positive going forward. With that sort of revenue growth, it’s not hard to imagine how BKYI stock could take off in coming months on any additional new contract wins or favorable developments.
If you’re thinking about autonomous vehicles, Gentex (GNTX) probably isn’t the first name that comes to mind. But it should be on your watch list. Gentex provides automotive systems that may ultimately help empower self-driving while making the human vehicle operator superfluous.
Gentex provides digital vision — helping the car understand the environment around it. This already helps with driving assistance, monitoring blind spots and back-up guidance. Historically, Gentex has made its money selling smart and auto-dimming mirrors, and some skeptics had suggested that autonomous vehicles would reduce the need for Gentex’s products. But the company beat them to the punch by developing its smart vision systems.
Due to weakness in the overall automobile market at the moment, Gentex stock is still available at a fair price. That’s especially nice since the company has a strong commitment to capital return. It pays a rising dividend and is buying back a substantial amount of stock.
Caci International (CACI) isn’t a biometrics pure-play stock. In fact, Caci offers the government a wide variety of defense services. These range from health to communication, litigation support and cybersecurity, among others.
Biometrics come into play because Caci has real-time artificial intelligence solutions to help identify and defeat enemy ground units and unmanned aerial systems such as drones. As you might expect, Caci is able to earn large profit margins on this sort of business, as it’s more important to do the best work possible rather than pinch pennies for such a critical function.
Impressively, CACI stock has nearly doubled over the past year. Despite the huge run-up, shares still trade at a reasonable 20 times forward earnings. With the recent unease in Iran, expect government defense spending to remain elevated going forward, which is a major tailwind for Caci.
At the time of this writing, Ian Bezek owned IBM stock.
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