Unmanned aerial vehicles have long been a staple for the U.S. military, both for surveillance and to use as weapons, but that's just the start of the industry's potential. Drone usage in the military shows no signs of slowing down.
Outside of the military, drones are entering the mainstream. Consumer products have proven popular for photographers and videographers. Going beyond that, Amazon hopes to revolutionize the shipping industry by using drones to deliver products to customers in record time. It sounds like pie in the sky, but it could happen.
The possibilities of drones both in military and civilian life are still being explored, as the industry is largely still in its infancy. For investors looking to get into this promising industry, here are three companies involved in drones that are worth investing it.
GoPro's stock performance since going public in June 2014 has been dismal, with a 30% drop in its initial price. This year the stock has been hit particularly hard, with a drop of 60%. Its most recent quarter missed expectations, and GoPro offered weak guidance for the holidays. Those numbers don't look good, but GoPro is settling in on realistic prices after irrational hype.
GoPro makes the tiny video cameras that are the standard for consumers piloting drones for photography and videography. The popularity of the product is widespread, and growth continues even though it's below expectations. One of the problems facing the company is that the product appears too well designed, as customers aren't upgrading as often as Wall Street likes.
The company missed out on the development of drones, but now is planning to enter the market. GoPro is playing catch-up to its competitors, but the brand is so strong that sales could generate a lot of first-time drone buyers. GoPro's drone is expected to come out in 2016, and the stock could remain a bargain until then.
The U.S. government is a happy customer of Lockheed Martin's continually expanding range of drones. Lockheed Martin develops a number of fighter jets, cargo planes and helicopters for military use, but drones are expected to be the future. The company is currently the biggest military contractor on the planet.
Lockheed Martin has been exploring nonmilitary use of its unmanned aircraft with promising results. Its line of K-Max helicopters has been used to transport cargo in Middle East hot spots, but it's testing out their effectiveness in the U.S. to battle wildfires, too. The government is quite optimistic about this usage, which bodes well for Lockheed Martin's expanding fortunes.
A common concern for Lockheed Martin, which relies on military contracts for the bulk of its revenues, is that there's pressure on Congress to reduce military spending and scale back projects. While it's a popular talking point of politicians, there's been very little slowdown for the company. The third quarter fiscal 2015 earnings report showed that revenues were up and beyond expectations. The company has strong financial footing and recently decided to up its already-generous dividend of more than 3%.
AeroVironment is different from the other companies discussed here because it's purely about drones. This California-based manufacturer specializes in small drones for military use. Most recently, it was awarded an $18.5 million contract from the Pentagon to supply its 4.2-pound Raven surveillance drone. This model was already the most-used military small drone in the world.
The company has suffered poor fiscal second quarter earnings, and will be releasing its latest earnings on Nov. 24. Despite the poor performance, AeroVironment is a promising small cap with potential.
The Future of the Industry
In 2015, the drone market is estimated to have a $10 billion value. By 2020, the size of the industry is expected to increase to $15 billion. It's a promising industry that could pay off, especially as governments shift toward unmanned aerial vehicles and consumers are enticed by affordable models for photography.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.