This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

September 24, 2009 - Applied Signal Technology, Inc. (APSG-NASDAQ) provides intelligence, surveillance, and reconnaissance solutions for the defense, intelligence, and homeland security markets. It operates in three divisions: Broadband Communication Systems, Intelligence and Electronic Warfare Systems, and Sensor Systems.

The Intelligence and ElectronicWarfare Systems division provides research and development for the collection and analysis of tactical wireless communications and electronic intelligence. This division's COMINT products include wideband processors and collection products; and electronic intelligence and electronic support measure products comprise the Pegasus family of collection systems.

The Sensor Systems division offers sensor signal processing solutions for space-based, airborne, terrestrial, and undersea sensor technologies. Its sensor processing products consist of digital signal processing hardware and software to automatically process the results of physical phenomena sensors to detect abnormalities of interest. This division's sensor solutions include synthetic aperture sonar, radar, magnetic, and explosive detection products. These systems are designed to detect abnormalities in the marine environment, such as the presence of a submarine, mines tethered to the ocean floor, and terrorist activities.

The company's principal customers comprise the United States Government and defense industry prime contractors for the United States Government. Applied Signal Technology, Inc. was founded in 1984 and is headquartered in Sunnyvale, California.

This stock is one of the rare ones for 2008 and 2009. Starting in early 2008, its price bottomed at $10.70 and has marched ever upward to $26.92, reached on July 21 of this year. The reason for strength in an otherwise difficult time? The usual: earnings.

While they've grown nicely over the last 3 years, going from 37 cents in 2006 to 55 cents in 2007, then 63 cents last year, it's this year that will make investors want to to take notice. Consensus estimate from 8 analysts is for $1.08, a 71% increase for 2009. Next year, the number is $1.19. Earnings jumped in the company's third quarter (ends in July, fiscal year is October 31), going to 25 cents a share, up from 15 cents in the same period last year. Demand for several of its surveillance products improved noticably in the quarter as well as better royalty payments and lower operating costs.

Recently the company signed a new 5 year contract with a customer yet to be identified. It's worth $200 million and Applied Signal will provide a number of intelligence, surveillance and reconnaissance (ISR) services. A very good sign for a company that had annual sales of $186 million last year. Analysts see $206 million this year, then $238 million next year, growth of 15.6%. Look for the company to go with its strength and continue emphasis on ISR since the demand only seems to be growing.

More numbers: Forward P/E is 19.66. Price to sales is 1.58. Operating margin for the last 12 months was 11.43% while Profit margin was 6.85%. Return on Equity was 10.42%. Total cash is $61.45 million which is $5.26 a share. Total debt is $4.29 million. Current ratio is 5.26. Book value per share is $10.31. There are 13.17 million shares outstanding with a float of 12.48 million. Insiders own 14.27% while institutions have 72.60% of the stock. There is a dividend of 50 cents a share for a yield of 2.2%.

Aggressive investors should like this stock. There's very little debt. The company's products are in ever increasing demand with no suggestion of slack any time soon. The only caveat is that all revenues come from one source: government agencies and departments. But it's hard to imagine that any elected official would vote for cutting back on intelligence, surveillance, or reconnaissance in these troubled times.

- Company Web site: www.appsig.com

 Ted Allrich