How to Invest in the Anti-Counterfeiting Market

Some small companies are making big strides at fighting counterfeit currency. Here's a look at a few of them.

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There’s no consensus about the exact size of the counterfeit market, but estimates rank it as a billion- or trillion-dollar industry. And though the illegal nature of counterfeiting makes it hard to say for sure, the statistics available show that it’s only growing more prevalent.

Since its inception in 1865, the Secret Service was created to investigate and prevent counterfeiting. This year alone, they have been kept busy. In just one example in January, an American man was charged with making counterfeit bills. According to the press release, the “maximum penalty for both making counterfeit U.S. currency and dealing in counterfeit currency is 20 years in prison and a $250,000 fine.”

Why is the market important?

Its penalties and prevalence means that companies in a wide range of industries have a vested interest in cutting down counterfeits, and tech companies are responding to this demand. Some of the biggest players in the anti-counterfeiting space are Illinois Tool Works (NYSE:ITW), a manufacturer of polymer-based securities materials and optically variable security laminations, and NXP Semiconductors (NASDAQ:NXPI), a company involved in radio frequency identification. Respectively, these companies have seen share price growth of 9.45 and 17.31 percent in the past six months.

However, the nature of the anti-counterfeiting market also lends itself to small-cap companies that excel in specific areas. In particular, companies in the counterfeit currency subsector are doing well. Although it’s a relatively minor section of the broader market, governments are willing to do almost anything to ensure that their fiat currencies remain uncompromised. That sort of demand ensures that only the highest-quality and most competitive companies are operating in this sector. Here’s a look at a couple of these notable niche players.

Key innovators in the anti-counterfeit currency space

Nanotech Security (TSXV:NTS) is one interesting company operating in the anti-counterfeit security space. The company is engaged in creating light-based recognition nanotechnology and Optical Thin Film for use in anti-counterfeiting and authentication processes. Although these technologies can be used for authenticating legal documents and commercial products, the company’s main area of focus is currency.

The company is broken down into two segments: security features and surveillance. Therefore, despite its relatively niche focus on combating counterfeit currency, the company also looks outwards into the broader cybersecurity market. In the past six months, Nanotech Security’s share price has gone up 9.17 percent. This more recent growth is working to offset a year-to-date decline of 21.19 percent.

London-listed De La Rue (LSE:DLAR) is another key player in the anti-counterfeit currency space. With a bigger market cap than Nanotech Security, De La Rue is one of the longtime heavy hitters in the market. The company is a commercial banknote printer, security paper maker and provider of security products and software solutions. The company operates in four segments: currency, identity systems, security products and cash processing solutions. De La Rue has seen a year-to-date share price increase of 1.63 percent and in the past month it’s gained 4.34 percent.

Applied DNA Sciences (NASDAQ:APDN) has a market cap of $38.25 million. They are dedicated to security solutions combating the challenges of modern commerce. Their technology DNAnet is a DNA marker that can be used to identify evidence without a doubt, linking offenders to specific crime scenes and helping return stolen items, like a wallet, to their rightful owners.

Latest banknote security features

So what are companies actually doing when they claim to be improving the security of currency against counterfeiters? A lot of resources in this sector are directed at creating the best holograms. For instance, Sophic Capital states that Giesecke & Devrient subsidiary Louisenthal offers banknote security features as diverse as clear windows embedded with holograms, color-changing features and 3D effects. Meanwhile, the US Department of the Treasury and the Bank of England use Crane Currency’s MOTION Switch technology on their bills. This technology works as an animation that switches between images when a note is moved.

All in all, anti-counterfeiting companies have been very effective in the case of currency. According the to Federal Reserve, 39.8 billion US banknotes were in circulation in 2016. And yet only an estimated $2.5 billion, or one-quarter of a percent, are fakes. However, that isn’t to say that the anti-counterfeit currency market has solved the problem — in fact, the opposite is true. As anti-counterfeit technologies become more and more sophisticated, so too do the criminals attempting to undermine governments’ fiat currencies. That means anti-counterfeit companies have to remain at the cutting edge of technology in this space.

As governments continue to invest heavily in this sector, individual investors should also consider the area. While it doesn’t look like the problem of counterfeiting is going to go away anytime soon, the silver lining is that there is money to be made from companies combating the issue. 

Don’t forget to follow us @INN_Technology for real-time news updates!

This article was originally published on March 16, 2016. All stock information has been updated to reflect its new publication date on February 15, 2017.

Securities Disclosure: I, Emma Harwood, hold no direct investment interest in any company mentioned in this article.

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