Airborne Investing Trends
Kevin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When it comes to logical investing one is inclined to look at trends. Unfortunately, most investors like to exist in a myopic world where only stock trends themselves are actually examined. What the wise investor understands is that trends, no matter the kind or source, have serious implications for investment purposes. Let’s look at a trend in American manufacturing that began in World War II and continues to evolve in ways that investors can use to their advantage.
The trend we’re looking at here is Aeronautical Manufacturing. During WWII the United States made 295,959 aircraft. Over the years, the production numbers have fluctuated. There were the expected spikes in production during the Korean and Vietnam wars, as well as spikes due to exploitation of new technology, namely stealth technology.
In the 2000’s something peculiar happened. Maybe it was the lack of a sizable foe or just money issues, but the military is now sharing a design. The Joint Strike Force fighter is a plane, made by Lockheed Martin (NYSE: LMT) with help from subcontractors, that will be used by three branches of the US services: Navy, Air Force and Marines. In other words, the United states went from building nearly 300,000 aircraft in five years to forcing the military branches to share a single fighter aircraft design. That means only one manufacturer gets a contract to make fighters, although many subcontractors are involved. While there are other types of aircraft made for military purposes by other contractors, this is still an indication that military budgets are constrained by reductions in defense spending. It also tells the investor to be wary of aeronautical companies that rely on manned aircraft production.
To further compound the situation, the U.S. Congress is in a fight over the program. Members of congress with subcontractor and contractor jobs for the project in their district are battling to keep the JSF program alive, while other members of congress see it as costly and wasteful. Even this one fighter plane project may get cut.
Let’s combine this with another trend, that being the rise in use of drones. Drones are cheaper, don’t need a pilot and will stay airborne for much longer periods of time safely. Their use, albeit controversial to those that lack drones, looks to cause another trend. Many agencies based in the United States, especially those in law enforcement, want drones of their own.
What does this mean to the investor? It means that when news stories about local law enforcement, fire brigades and the like start budgeting for drones, it time to invest in drone manufacturers. The FAA has raised the weight limit on drones used by domestic first responders from 4.4 pounds to 55 pounds. Watch for further changes in FAA rules and invest accordingly.
A drone is technically called a UAV (Unmanned aerial vehicle) and some makers are already seeing upswings in stock value even before the increase in production for domestic use. General Atomics is a privately held firm and one of the top producers of UAVs. Look for an eventual IPO and be one of the first in line. Northrop Grumman (NYSE: NOC) makes a number of different models and should have no problem creating a first responder specific model. AeroVironment (NASDAQ: AVAV) makes one of the smallest UAVs available. This would be an indicator that they possess the technology to produce UAVS that are perfect for first responder use. Watch for them in the news as opposed to stock reports. Large companies like Boeing (NYSE: BA) and BAE Systems are in the UAV game, although Boeing does its work through its subsidiary and privately held firm Insitu. Textron (NYSE: TXT) makes a group of UAVs through its subsidiary AAI.
The point here is to look at the over-all trend. That trend being the military’s move away from manned aircraft to unmanned aircraft and the successes tied to that move opening up new avenues of profit growth for manufacturers. Given how much the U.S. government has eschewed its own virtuous goals of privacy rights, it seems that the domestic market for UAVs is about to become a serious profit producer.
The only downside here is that investing in UAVs makes one the equivalent to a person that made a fortune by investing in the company that made the mechanical dogs in Ray Bradbury’s ‘Fahrenheit 461.’ Other than that, this is a trend that wise investors can also use to generate profit.
Disclosure: Kevin is not a registered advisor and has no position in any of the stocks mentioned in this post. One presumes that at some point in the future he will “put his money where his keyboards is” and rectify this situation. The Motley Fool owns shares of Lockheed Martin, Northrop Grumman, and Textron. Motley Fool newsletter services recommend AeroVironment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.