Drone Stocks To Buy in 2019
Grant Davis |
We are at a point in time where warfare does not need to be fought by human soldiers.
Boston Dynamics is developing Atlas, a humanoid capable of full-body function and motion. Push Atlas and it likely will hold its ground. Knock Atlas to the ground and it’ll rise back to its feet. We’re only a few years away from allowing our robot compatriots to serve on the battlefield.
While humanoid technology is still years away from reaching the battlefield, its aerial equivalent is already occupying the skies.
Unmanned aerial vehicles (UAVs) or drones are already a growing percentage of the United States defense budget. In 2019, the number of drones owned by the U.S. military is expected to triple. While Raytheon, Lockheed Martin and Northrop Grumman all provide drones, two lesser-known companies are the leaders in this space.
Drone Stock #1 – AeroVironment (AVAV)
We recently recommended AeroVironment to MightyTrades readers. You can read the full AeroVironment recommendation here.
In summary, AeroVironment represents over 86 percent of the U.S. Department of Defense’s drone inventory. According to William Blair, the United States’ budget for drones is expected to grow 15% annually over the next several years. AVAV is in prime position to capture a growing percentage of this budget.
In addition to military-grade drones, AeroVironment is working alongside SoftBank to use drones to deliver 5G internet connectivity to the entire world. If successful, the windfall would be massive for AeroVironment. We explain more in our full recommendation. Click here to read it.
Drone Stock #2 – Kratos Defense & Security (KTOS)
While not a pure play drone stock, Kratos Defense & Security is emerging as a major player with their combat drones. From “swarm” UAVs that can overwhelm target areas or act as decoys for human-operated jets to target drones that, as you guessed, act as enemy targets for fighter pilots.
The Kratos XQ-222 Valkyrie and UTAP-22 Mako drones are currently being purchased by the United States Air Force. These drones offer fighter-like performance at between $2 and $3 million USD, compared to $100+ million USD for each manned fighter jet.
How big is this opportunity? Well, it’s not huge, YET. KTOS’s Unmanned Systems Division recently won a $15.2 million dollar contract to build jet-powered drones for the United States Air Force.
Goldman Sachs recently upgraded the stock and set their price target at $20. Goldman’s note to investors mentioned the likelihood that Kratos’ drone business could grow 10 times larger by 2025.
Aside from drones, KTOS has its government solutions segment. This business segment generates most of the revenue for KTOS, offering products and services in areas such as satellite communications and cyber security.
We believe both Kratos and AeroVironment are likely acquisition candidates. While on paper their valuations are lofty, their best-in-class technology and strong market position make them attractive to larger defense contractors. With market caps below $2 billion, it’s certainly within reason for a company like Lockheed Martin to purchase one of these drone manufacturers.
If an acquisition doesn’t take place, these companies are still poised for substantial growth in the coming years.