Invest in the Drone Boom With These Stocks
When investment mavens drone on, it’s easy to tune them out. But when investment mavens talk drones, there’s every reason to listen. Quadrocopters, ocean robots, and the like represent a wave of high-tech you could well call high-flying tech—as much for the potential altitude of stock prices as the aircraft themselves.
To gain some perspective on where drone stocks might be headed, it pays to study the metrics behind their growing popularity. The Federal Aviation Administration (FAA) announced U.S. drone registrations passed 1 million in 2018 and were expected to more than double to 2.4 million in 2019. Goldman Sachs forecasts drone sales to reach $100 billion by 2020. That figure embraces a wide variety of drones—used for photography, racing, and even search and rescue—with growth expanding into farming and package delivery.
On the military front, the Center for Study of the Drone at Bard College reports the U.S. Department of Defense fiscal 2019 budget request called for $9.39 billion for unmanned aircraft systems, up from $7.5 billion in 2018. This growth is expected to continue as a way to limit pilot casualties.
AeroVironment is a leading manufacturer of small unmanned aircraft systems used for video surveillance and other purposes with a market capitalization of $1.8 billion in early 2019. The company expects its revenue to increase to $310 million in fiscal 2019, a growth rate of 14%. It has a strong balance sheet with no debt and its shares as of June 2019 are trading in the $63 range, nearly 50% off the 52-week high. Because the company has divested all but its aircraft business, it is poised to capitalize on the projected 15% annual U.S. military increase in drone spending forecast by research firm William Blair & Co.
Northrop Grumman (NOC)
This industrial contractor fills the slot formerly held by Boeing, which is facing challenges from the 2019 grounding of its troubled 737 air fleet. Northrop Grumman is making all-weather spy drones for NATO that can operate at high altitudes and drew attention at the Avalon air show in February 2019 with the historic landing of its RQ-4 Global Hawk. The company's drone division has a broad range of purposes and its Polar Eye drone is mapping polar habitats in the Arctic. The stock is down slightly from its 52-week high of $340 but has bounced back nicely from a December 2018 low of $226. Its 24.9% gain in the six months ending June 5, 2019, far outpaces the sector's 5.6% growth for the same period.
Back in 2013, Amazon.com began making a lot of noise about Amazon PrimeAir. The service, so the e-commerce giant predicted, might someday get a package to your door within 30 minutes, via octocopter. But for all the hype, and predictions of a launch by 2015, it simply didn’t happen. On June 5, 2019, Amazon said it will begin home delivery "in months" via self-piloted drones. The announcement did come in the same week the House Judiciary Committee announced its launch of antitrust investigations. While the stock price held at more than $1,700, time will tell if Amazon founder Jeff Bezos can keep the momentum flying.