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Finding Profits in the Dark

The thermal imaging that the Predator used to hunt down Arnold Schwarzenegger and friends in the movie of the same name may have seemed liked science fiction, but soldiers in the field use that very technology. In fact, infrared cameras, night-vision systems and the like comprise a $5.9 billion market worldwide.

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What’s the best way to play it? Cramer likes FLIR Systems , a stock recommended as part of the homeland-security portfolio he’s been highlighting all week.

“I think they’re the best player in the thermal-imaging game,” Cramer said.

FLIR controls 22% of the market, thanks to its role as a low-cost, high-volume supplier that introduces new technologies at better prices than the competition. Since 2005, the number of units shipped by FLIR has jumped a whopping 90%, while costs have dropped 30% per unit. This is the part that Cramer likes the most, the company’s focus on keeping its products cheap. While the average infrared camera runs $3,000, FLIR is trying to build one that costs under $500.

FLIR’s technology is used in everything from surveillance and drug enforcement to special ops and infrastructure protection. And the company retains both public and private clients. Customers include US military bases in Iraq and Afghanistan, as well as New York’s major airports, nuclear facilities and any number of universities, utilities and contractors.

The security and surveillance area grew at almost 50% in 2008, and FLIR owns 40% of the infrastructure-protection market. Given that engineering studies estimate $2.2 trillion in infrastructure work is needed in the US, Cramer said, this is a growth market. But FLIR gets 38% of sales from overseas as well, giving the company the international diversification that Cramer likes.

One red flag is an intellectual-property case brought against the company by Raytheon . But on Sept. 1, the presiding judge dismissed some of the plaintiff’s claims, Cramer said, making a favorable outcome to FLIR much more likely.

The stock’s cheap, trading at 18.8 times earnings with a 19% long-term growth rate. FLIR reports earnings on Oct. 21 and then holds an analyst day on Nov. 2. Management’s been talking up an increase in orders for 2010, so Cramer recommended buying on any dip after the quarter.

“I think that that would give you a good entry point with a solid catalyst still ahead,” he said.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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