Drones could become an integrated part of our communities.
While drones haven’t become a pervasive part of everyday life yet, society is heading in that direction. Whether it’s deliveries from Amazon.com (ticker: AMZN) or inspections of your local telephone poles, the investment case for drones is that they have the potential to become integrated into our communities, says Miriam McNabb, editor-in-chief of DroneLife.com. “It’s at a very early stage,” McNabb says, “so people can get in on the ground floor.” There may not be many pure-play drone stocks at the moment — privately-held Chinese company DJI dominates the commercial and consumer drone space — but the list is growing. There are other promising investment opportunities to consider. Here are seven drone stocks to watch.
EHang Holdings (EH)
Think of passenger drones, or unmanned aerial vehicles (UAVs), like pilotless aerial taxis. Beyond city transportation, they also have applications for tourism, logistics and emergency response. In February 2018, passenger drone maker EHang released the first video of a passenger flight in one of its drones. The company said in May of this year that it had received approval from the Civil Aviation Administration of China for the commercial pilot operation of passenger-grade autonomous aerial vehicles for air logistics uses. Earlier that month, EHang announced a partnership with a tourism company to develop the world’s first “urban air mobility”-themed hotel, in which guests will be shuttled via the company’s drones. The company is also involved in a pilot program — no pun intended — in the Chinese city of Guangzhou, where EHang envisions a low-altitude aviation transportation network.
This French drone maker announced its latest drone, the ANAFI USA, in June. In addition to having “USA” right in its name, the drone is also manufactured in the United States and has the same security, durability and imaging capabilities as a drone the company designed for the U.S. Army. McNabb thinks the launch of this drone — which is built for first responders, firefighters, search and rescue teams, security agencies and surveying and inspection professionals — is a move by the company to compete with Chinese drone technology in the current political environment of tensions between Beijing and Washington.
Plymouth Rock Technologies (PLRTF)
Another drone company that could benefit from the tension between the U.S. and China — which has included U.S government agencies banning DJI and other Chinese drone purchases and use — is Plymouth Rock Technologies. Well, that is if it can get its business off the ground. The company says its PRT-X1 drone platform is “proudly built in the USA” from NATO coalition-sourced parts. Still, the company is very small, and investing in Plymouth Rock could be risky. The company hasn’t turned a profit yet, as of its last filing, and Plymouth said at the time it would need substantial additional money to establish its current and planned operations. But if there is a large pivot from government and law enforcement reliance on Chinese-made drones, Plymouth Rock Technologies could be in a good spot.
Nvidia Corp. (NVDA)
Eric Ervin, CEO of Reality Shares, points to Nvidia as a beneficiary of the drone boom. Among the companies that have used Nvidia’s software is Aerialtronics, which makes technologically advanced commercial drones that can be used for power line and wind turbine inspections and other applications. Nvidia’s Jetson technology uses deep learning algorithms to help the drones understand and react to the world around them, the company says. Nvidia’s tech has also been used in warehouse analytics drones from company Intelligent Flying Machines, or IFM. “These autonomous machines are driving exciting new capabilities — from streamlining warehouses and inspecting lengths of hard-to-access power lines in real time to aiding in search and rescue operations in difficult terrain,” Nvidia says on its website.
Ervin also points to semiconductor company Ambarella as a notable player in the drone space. The company’s chip technology provides advanced 3D image stabilization, 4K resolution and advanced computer algorithms to enable smart features for drones like target tracking and GPS-denied precise visual localization. Ambarella’s technology is also involved in a host of other automotive, security, industrial and robotics applications besides drones. It seems safe to say that as demand for drones grows, so too might demand for the company’s ultra-high-definition video compression processors, although the drone market might not make up a huge percentage of revenue. The company said in an investor presentation that the consumer drone market hasn’t hit growth expectations and is a relatively small opportunity. But commercial drones are expected to adopt computer vision technology and “remain attractive but relatively small market opportunities.”
While big aerospace and defense companies such as Boeing (BA), Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC) all operate in the drone market, the size of their drone business is just a small part of their overall sales. For a purer play, Tim Bain, president of Spark Asset Management Group, points to AeroVironment as one of the top drone stocks to watch. This relatively small defense contractor focuses on UAVs. While the company offers drones for commercial use, it says it derives the majority of its revenue from unmanned aircraft systems (UAS) and related services sold mostly to the U.S. Department of Defense and international allied governments, as well as tactical missile systems and related services to the U.S. government. “AeroVironment is essentially a play on the growth of the military drone market,” Bain says.
Even though drones are “really small needle movers” for the big aerospace and defense contractors — and it’s hard to pinpoint who the leader in the space might be — the long-term outlook is nonetheless positive for drone manufacturing for these players, says Morningstar analyst Burkett Huey. The military likes drones because they can be efficiently operated without putting human operators at risk, he adds. Despite problems with its 737 Max program, Boeing has the budget and the balance sheet to really invest in its drone business, Ervin says. The Boeing Defense, Space & Security division has a dedicated drone subsidiary, Insitu, which designs, develops, produces and operates UAS. In addition to defense applications, the company’s technologies can also be applied to commercial uses such as environmental monitoring, agriculture, search and rescue, disaster relief and mining operations.
Seven drone stocks to watch:
— EHang Holdings (EH)
— Parrot (PAOTF)
— Plymouth Rock Technologies (PLRTF)
— Nvidia Corp. (NVDA)
— Ambarella (AMBA)
— AeroVironment (AVAV)
— Boeing (BA)
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7 Drone Stocks to Consider as the Technology Soars originally appeared on usnews.com