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Drones – How to Cash In on Drone Stocks

Facebook’s interest in drone maker Titan shows UAVs are more than hot air

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Still, it’s only a matter of time before drone applications like this become commonplace. The FAA is under the gun to integrate drones into U.S. airspace by September 2015, but only released its initial roadmap last November. The next big step is expected later this year, when the agency says it will publish rules and requirements for drones weighing less than 55 pounds.

Despite delays, regulatory challenges and privacy dilemmas, widespread commercial deployment of drones is in our future. So what is the best way for investors to play this lucrative new market of drone stocks?

Several aerospace/defense firms stand to gain from broad deployment of UAVs for commercial use. Among them, major U.S. defense contractors like Textron (TXT) subsidiary AAI, Northrop Grumman, Raytheon (RTN), Boeing (BA) and privately held General Atomics are all major players in the drone space.

Perhaps the closest thing to pure play drone stocks is AeroVironment (AVAV), which has sold a number of drones to local law enforcement agencies. AVAV stock spiked more than 20% on Wednesday after it reported earnings and revenue well ahead of expectations. For the quarter ended in January, AVAV stock posted an EPS of 49 cents, blowing away Wall Street’s 19-cent expectations. The company reported revenue of $69.2 million — 47% higher than the year earlier and well above the consensus $63.9 million.

Last month, AVAV inked a deal with Lockheed Martin to jointly pursue UAV opportunities. It has worked with government agencies on the Global Observer, a hybrid-electric, stratospheric reconnaissance and communication drone. It also provides commercial and public safety UAV solutions. Additionally, the company also develops electric vehicle charging stations.

With a market cap of $817 million, AeroVironment’s valuation is rich: It has a price-to-earnings-growth ratio of 6.71 and trades at nearly 66 times forward earnings. But for the risk-tolerant growth investor looking for the next big thing, I like AVAV stock in 2014.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.  

Article printed from InvestorPlace Media,

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