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While BAE Systems plc Could Now Be A Strong Buy, Is Unilever plc A Sell?

Companies can live and die on their strategies. Let’s have a look at BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) and Unilever (LSE: ULVR) (NYSE: UL.US), as both companies have strategies that could help or hurt their bottom lines in 2015.

BAE Systems is being smart

Look no further than the hacking of Sony Pictures Entertainment‘s computer systems — whether it’s identity theft or tax fraud, many of the world’s security threats are coming via cyber-attacks.

BAE Systems has traditionally made money from military hardware. Now it’s looking to earn more from its computer software. Specifically, it’s turning to the information security market for further revenue.

NetReveal is a service already offered by the defence company. It’s currently in talks to sell its NetReveal anti-tax evasion (tax fraud) software to a number of central Europe governments. According to The Financial Times, Slovakia implemented the platform in March and made back the price it paid to BAE within a month of operations. The Czech Republic, Poland and Hungary are also all in talks with BAE.

It product works by processing vast reams of payment data — all the authorities need to do to catch fraudsters is join the dots created by this system.

Rome wasn’t built in a day

BAE is slowly building up its artillery against financial crime. The company bought American cyber security company SilverSky in October, software outfit Norkom in 2011, and tech company Detica in 2008. It’s all under the bannerhead of BAE Systems Applied Intelligence. Last year BAE Systems’ Cyber and Intelligence division (of which Applied Intelligence is a part) brought in £1.24 billion in revenue for the group.

Sovereigns will be working harder in coming years to collect tax revenues, and cyber-crime only looks set to increase over the same period. BAE Systems has turned this business “Threat” into an “Opportunity” with its cyber division. In the medium term it may become a “strength” for the company.

Jukebox in Siberia running out of music for Unilever

The Russian economy ‘stinks’ right now. Inflation is north of 10%, while the ruble plunged over 40% in 2014. Russia is now experiencing stagflation with Finance Minister, Anton Siluanov, warning the country’s economy could contract by around 4% in 2015 if oil stays below US$60 per barrel.

This has consequences not only for Russian consumer demand, but also for China and other countries connected economically to Russia. It also has big implications for companies exposed to emerging markets in general.

Unilever’s Russian businesses include cosmetics maker Kalina, and ice cream producer Inmarko, among others. The CEO concedes the faltering Russian economy will have an impact on Unilever’s business, but he’s far from pessimistic about the situation. Earlier this year he said he would be looking for bolt-on acquisitions in the region. Despite revenue growth slowing from double to single digits over the past 12 months, Unilever says it’s primarily concerned with increasing its market share. My concern is that as the overall Russian market gets smaller and smaller, Unilever’s share of the pie will be less and less enticing for investors.

Where to from here?

So there you have it: one company boldly looking to push into largely unchartered territory, the other looking to navigate economically dangerous territory. I like where BAE Systems is going, but I’m just not sure I understand what Unilever is doing. It’s certainly taking a risk by pushing further into the emerging economies of the world in 2015.

Who am I to say, though, that what Unilever is doing is a mistake? I don't understand it but the CEO might have more information than I do. More broadly, whether it's pushing further into an underperforming investment, or simply holding onto an existing 'stinky' investment, you need to be able to hold your nerve. Sometimes it pays off, other times it doesn't. That's why you need a diversified portfolio.

Holding your nerve though will help you to become wealthy. The Fools have proved that with their own portfolio. Some of their biggest share winners suffered enormous drops during the banking crash of 2007 and 2008. Read about it in this report, 10 Steps To Making A Million In The Market. Having an understanding of how to manage the market's ups and downs is what separates average investors from professional traders. Click here and read this report. Don't worry, there's no obligation to do anything more and it's completely FREE.

David Taylor has no position in any shares mentioned. The Motley Fool UK has recommended Unilever. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.