White House Sponsored 'Identity Ecosystem' Initiative Provides Investment Opportunities

Includes: CA, MSFT, NOC, WAVX
by: GuruFundPicks

The Obama Administration on April 15th launched an initiative to create an ‘Identity Ecosystem’ to improve the privacy, security and convenience of sensitive online transactions. The vision is to create an ecosystem whereby individuals, businesses, and other organizations enjoy greater trust and security as they conduct sensitive transaction online. The ecosystem would enable consumers who want to participate to obtain a single ‘trusted credential’ from a public agency or private secure ID provider that can then be used to obtain access and conduct transactions with online businesses without having to give confidential personal information to each business as is the case right now.

It is anticipated that the ‘trusted credential’ would reside as a secure application on your mobile device, as a smart card or on another device like a key fob. Many privacy advocates will be somewhat relieved to know that the system would allow you to remain anonymous like when surfing the web or in internet chat rooms, unless you choose to use the system to conduct secure online transactions as in online banking or e-commerce.

The ‘Identity Ecosystem’ is needed to make online transactions convenient and secure, and thereby enable the online infrastructure to keep pace with and support the growth and innovation in online activities such as shopping, banking, social networking and accessing your employer’s intranet.

Of these, online retail sales alone are projected by Forrester Research to increase from $172.9 billion in 2010 to $248.7 billion in 2014. Meanwhile, the online infrastructure has not kept pace with this growth, and the economic costs of that are mounting. For example, in 2010, 8.1 million U.S. adults were the victims of identity theft or fraud with total costs of $37 billion. In 2008 and 2009, specific brands or entities were targeted by more than 286,000 phishing attacks, all attempting to replicate their site and harvest user credentials. Also, it is estimated that a small business of 500 employees spends approximately $110,000 or $220 per user per year on password management.

Microsoft (NASDAQ:MSFT), Northrop Grumman (NYSE:NOC), CA Inc. (NASDAQ:CA) and Wave Systems (NASDAQ:WAVX) are among a handful of private companies that have already expressed support for the initiative. The following explains their possible involvement:

  1. Microsoft Corp. (MSFT) has several products, including Windows Live ID service and Windows CardSpace that could participate in the ‘identity ecosystem.’ Specifically, the Windows Live ID service may participate as one identity ‘trusted credential’ provider among many, and Windows CardSpace would be the MSFT implementation of an identity selector for the ecosystem. MSFT stock currently trades at $25.61 in the middle of its 52-week range, at a P/E of 12, and is expected to release its March 2011 quarterly report on Thursday after the market close.
  2. Although known more as a defense contractor, Northrop Grumman Corp. (NOC) is an integrated enterprise consisting of businesses that address the global security spectrum, from undersea to outer space to cyberspace. It is a leader in the development of identity management technology including biometrics, smart cards, encryption, firewalls and physical security, and provides these to both the private sector and government agencies. It is anticipated that some of its technologies including biometrics and smart cards would participate in the identity ecosystem. NOC stock currently trades at $61.47 in the middle of its 52-week range, at a P/E of 9, and is expected to release its March 2011 quarterly report on Wednesday after the market close.
  3. CA, Inc. (CA) is the leading independent enterprise information technology (IT) software and service company generating almost $45 billion in revenue in 2010. It is anticipated that they would provide the solutions that would help authenticate an individual’s identity in the ecosystem and verify that a person is who they claim to be. CA stock currently trades at $24.16 near the top of its 52-week range, at a P/E of 17, and is expected to release its March 2011 Fiscal Year report on May 12th after the close of market.
  4. Wave Systems Corp. Cl A (WAVX) is a provider of digital security hardware and software for internet and e-commerce applications. Currently the company markets its EMBASSY® Trust System consisting of a combination of client hardware and its firmware that enables secure online transactions. The system is designed to eliminate the need for remembering dozens of passwords, permitting users instead to log into their device and the device then logs them into their online accounts. WAVX stock currently trades at $3.32 in the middle of its 52-week range. It has generated a 1c loss for each of its last seven quarters while revenues have been rising sequentially every quarter at least for the last 2 years, up 35% year-over-year for the latest reported quarter ending December 2010.

This is just a preliminary list of companies that have expressed support for the ‘Identity Ecosystem’ initiative. In future articles, I will identify more publicly-listed companies and their potential involvement with this initiative.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.