In this article, we discuss 10 best drone stocks to buy now. If you want to see more of the top companies dealing in drones, click 5 Best Drone Stocks To Buy Now.
A drone is an unmanned aerial vehicle (UAV), which flies autonomously using software-controlled flight plans, onboard sensors, and global positioning systems. Drones are used in many applications, both commercial and individual, such as search and rescue, surveillance, traffic navigation, weather monitoring, firefighting, photography and videography, agriculture, and delivery services.
The drone market really took off in 2016, when the Federal Aviation Administration (FAA) authorized multiple exemptions for companies operating in the American drone market through FAA Part 107. According to Fortune Business Insights, the global commercial market for drones was valued at $6.51 billion in 2021. The market is projected to grow from $8.15 billion in 2022 to $47.38 billion by 2029, with a CAGR of 28.58% over the forecast period.
The rapid commercial adoption of drones by engineering companies, oil and gas firms, and the power generation sector is likely to fast-forward the growth of the drone market. Some of the most notable companies to watch in the drone sector include Northrop Grumman Corporation (NYSE:NOC), Alphabet Inc. (NASDAQ:GOOG), and Lockheed Martin Corporation (NYSE:LMT), among others discussed in detail below.
Our Methodology
We selected companies operating in the drone sector that have recently received positive analyst ratings, have optimistic hedge fund sentiment, and offer strong business fundamentals.
The hedge fund sentiment was gauged from the database of 900+ elite hedge funds tracked by Insider Monkey in the fourth quarter of 2021.
Dmitry Kalinovsky/Shutterstock.com
Best Drone Stocks To Buy Now
10. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 110
NVIDIA Corporation (NASDAQ:NVDA) is an American multinational technology company based in Santa Clara, California. In addition to specializing in semiconductors, graphics, computing, and networking solutions, the company’s Jetson platform provides the tools to develop AI-powered drones, robots, IVA applications, and other autonomous machines.
On April 25, Barclays analyst Blayne Curtis maintained an Overweight rating on NVIDIA Corporation (NASDAQ:NVDA) but lowered the firm’s price target on the stock to $295 from $350. With semiconductor earnings in Q1, the analyst sees demand “holding in for most names” but does not see the cycle as priced in yet and would remain selective. He slashed price targets across the semiconductor space to account for the pullback in the stocks.
Elite hedge funds piled into NVIDIA Corporation (NASDAQ:NVDA) during the fourth quarter of 2021. The Q4 database of Insider Monkey suggests that 110 hedge funds were bullish on the stock, with combined stakes worth about $10.5 billion. This is comparable to 83 funds holding shares of NVIDIA Corporation (NASDAQ:NVDA) in the preceding quarter, with collective stakes valued at $10 billion. In the first quarter of 2022, Ken Fisher’s Fisher Asset Management revealed a position worth about $2 billion in the company.
In addition to Northrop Grumman Corporation (NYSE:NOC), Alphabet Inc. (NASDAQ:GOOG), and Lockheed Martin Corporation (NYSE:LMT), NVIDIA Corporation (NASDAQ:NVDA) is one of the best drone stocks to consider.
Here is what RiverPark Long/Short Opportunity Fund has to say about NVIDIA Corporation (NASDAQ:NVDA) in its Q1 2022 investor letter:
“Nvidia is the leading designer of graphics processing chips (commonly known as GPU’s- graphics processing units), required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming- focused chip vendor to one of the largest semiconductor/software vendors in the world, dominating the core secular growth markets of gaming, data centers and professional visualization. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. For 2021 the company generated 61% revenue growth to $27 billion, expanded its EBITDA margins to over 44% and generated over $8 billion of free cash flow. Over the past five years, the company has generated a cumulative $23 billion of FCF after cumulative capital expenditures of less than $4 billion.
We expect future growth to remain robust as NVDA chips and software are critical to many of the core technologies being adopted globally, including cloud computing, virtual reality and advanced artificial intelligence. As with NFLX, we took advantage of the over 40% recent drop in the company’s shares over the last several months to initiate a small position.”
9. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 33
Northrop Grumman Corporation (NYSE:NOC) is an American aerospace and defense company, specializing in military aircrafts and drones, military vessels, missiles defense systems, satellites, electronic sensors, and rocket launch systems. Northrop Grumman Corporation (NYSE:NOC) is one of the most notable companies working on developing and deploying military drones.
On April 28, the company posted Q1 2022 earnings per share of $6.10, ahead of analysts’ predictions by $0.12. The net awards in the first fiscal quarter of 2022 totaled $8.5 billion and backlog was $75.8 billion.
Argus analyst John Eade on May 12 reiterated a Buy recommendation on Northrop Grumman Corporation (NYSE:NOC) and raised the price target on the shares to $495 from $420. According to the analyst, the company has consistently delivered optimistic surprises in recent years, regardless of the fluctuation in defense spending. Although most of the recent gain in Northrop Grumman Corporation (NYSE:NOC) stock has occurred after the Russian invasion of Ukraine, the stock’s valuations remain attractive, the analyst added.
According to Insider Monkey’s Q4 data, Northrop Grumman Corporation (NYSE:NOC) was found in the public stock portfolios of 33 hedge funds, up from 29 funds in Q3 2021. Donald Yacktman’s Yacktman Asset Management reported owning a notable position in Northrop Grumman Corporation (NYSE:NOC) in the first quarter of 2022, with 435,159 shares worth $194.6 million.
Here is what LRT Capital Management has to say about Northrop Grumman Corporation (NYSE:NOC) in its Q1 2022 investor letter:
“Based in Virginia, Northrop Grumman is one of the world’s largest defense contractors with annual revenue of more than $30 billion. The company operates in a cozy oligopoly, that after decades of consolidation has resulted in the US defense market being controlled by five large companies: The Boeing Company (BA), General Dynamics Corporation (GD), Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC), and Raytheon Technologies Corporation (RTX).
Industry barriers to entry are immense, government procurement cycles are extremely long, and the consolidated industry structure reflects this. This has allowed Northrop Grumman to earn stable mid-teens returns on invested capital (ROIC) and grow earnings per share at a rate of over 13% per year in the past decade, despite a topline that has grown only in-line with inflation. Even after the recent run-up in the stock price, it trades at approximate 15x next year’s earnings estimates, far below the S&P 500 index, despite being an above average company. While nominally, there are five major defense contractors, the true industry concentration is even higher because not all companies compete in all possible business segments. General Dynamics’ submarine division, Electric Boat, is the sole supplier of nuclear power submarines in the United States. Lockheed Martin is the sole supplier of the F-18, the F-35 and the F-22. Northrop was the sole bidder on the contract to develop the next generation of intercontinental ballistic missiles; Raytheon dominates missile systems; and so on.
Northrop’s revenue growth over the past decade has been mediocre but even that has led to impressive shareholder returns that have far outpaced the S&P 500. What’s more, we believe that revenue growth may accelerate in the next few years. A lot of ink is spilled every year about the “massive” U.S. defense budget that critics claim is “out of control”. Given this, you might be surprised to hear that U.S. defense spending as a share of GDP is at the lowest level in recorded history, at a mere 3.8%. In other words, U.S. military spending could double and not be out of line with historical norms. While we are not calling for a new Cold War, given the global instability we are witnessing, it is not unreasonable to expect U.S. defense spending to grow faster than GDP over the next decade.”
8. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 158
Alphabet Inc. (NASDAQ:GOOG), one of the most notable American tech giants, is also a prominent drone stock to watch. Alphabet Inc. (NASDAQ:GOOG)’s subsidiary, Wing, has developed delivery drones and navigation systems to deliver compact packages directly on a customer’s doorstep within minutes. On March 1, 2022, Wing hit the 200,000 commercial deliveries milestone. The company also reported that its Q1 revenue of $68.01 billion outperformed estimates by approximately $125 million.
On April 27, Jefferies analyst Brent Thill maintained a Buy rating on Alphabet Inc. (NASDAQ:GOOG) but lowered the firm’s price target on the shares to $3,400 from $3,600 following the company’s Q1 results, stating that “FY22 is looking very different than FY21”. According to the analyst, Core Search and Cloud witnessed “healthy growth” but YouTube ad revenue missed the consensus estimates for the third consecutive quarter, and these multiple headwinds are expected to continue into Q2.
In the fourth quarter of 2021, Insider Monkey’s database reported that 158 hedge funds were bullish on Alphabet Inc. (NASDAQ:GOOG), compared to 156 funds in the last quarter. According to Q1 2022 data, Chris Hohn’s TCI Fund Management is a significant shareholder of the company, with 2.3 million shares worth $6.6 billion.
Here is what Farrer Wealth Advisors has to say about Alphabet Inc. (NASDAQ:GOOG) in its Q1 2022 investor letter:
“Alphabet: We won’t waste much time trying to explain to our clients why Alphabet is such a phenomenal business, we believe that is quite self-evident. The better explanation is why we never bought Alphabet before. The reason was a personal bias we held based on three beliefs (which we now believe to be incorrect)
Growth in YouTube would stall as the increased ad-load would turn-off viewers (the double ad-load at the beginning of videos for example). Consumers will focus on discovery rather than search to purchase new items. For example – using Instagram/TikTok to decide what new clothes to buy instead of ‘googling’ for clothes. Other Bets: In general, we felt that capital spent on “Other Bets” has been a bit wasteful with the segment earning just around $3.1bn in revenue versus nearly $21bn in operating losses over the last five years…” (Click here to see the full text)
7. Honeywell International Inc. (NASDAQ:HON)
Number of Hedge Fund Holders: 51
Honeywell International Inc. (NASDAQ:HON) is an American multinational conglomerate operating through Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions segments. The company manufactures unmanned longer-range drones to detect and navigate urban traffic, terrain, obstacles, and people.
On April 29, Honeywell International Inc. (NASDAQ:HON) reported financial results for the first fiscal quarter of 2022. The company posted an EPS of $1.91, beating market consensus estimates by $0.05. The $8.38 billion revenue also surpassed analysts’ predictions by $86.41 million. Honeywell International Inc. (NASDAQ:HON) declared on April 25 a $0.98 per share quarterly dividend. The dividend is payable on June 3, to shareholders of the company as of May 13.
Citi analyst Andrew Kaplowitz maintained a Buy rating on Honeywell International Inc. (NASDAQ:HON) on May 2 and raised the firm’s price target on the shares to $232 from $229. After the company’s Q1 results, the analyst believes that Honeywell International Inc. (NASDAQ:HON) has the ability to “effectively execute” despite continuous supply chain and inflationary challenges.
According to the fourth quarter database of Insider Monkey, 51 hedge funds were bullish on Honeywell International Inc. (NASDAQ:HON), up from 45 funds in the earlier quarter. In Q1 2022, Ric Dillon’s Diamond Hill Capital owned a significant position in the company, with 1.2 million shares worth $238.2 million.
Here is what ClearBridge Investments has to say about Honeywell International Inc. (NASDAQ:HON) in its Q1 2021 investor letter:
“The portfolio’s quality bias and valuation discipline have generated compelling returns over time with typically strong relative results in more challenging environments as it did through the first three quarters of 2020. However, that same quality bias tends to create a more challenging relative performance environment for the Strategy during periods of sharp economic acceleration, which tend to benefit stocks that are more commodity linked or of lower quality. This has been the case during the vaccine- and stimulus-driven rally experienced late last year and during the most recent quarter. Sectors that lagged in the quarter included industrials, Honeywell also lagged in the quarter after previously generating strong returns over extended periods.”
6. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 75
QUALCOMM Incorporated (NASDAQ:QCOM) is a California-based wireless communication and technology company that developed Flight RB5 5G Platform, the first of its kind 5G and AI-powered drone platform and reference design with cutting-edge technology and Wi-Fi 6 connectivity.
On April 27, QUALCOMM Incorporated (NASDAQ:QCOM) reported earnings for the first fiscal quarter of 2022. The company posted earnings per share of $3.21, above consensus estimates by $0.29. The revenue grew about 41% year-over-year to $11.16 billion, exceeding market forecasts by $558.33 million.
QUALCOMM Incorporated (NASDAQ:QCOM) declared a $0.75 per share quarterly dividend on April 13. The dividend is payable on June 23, to shareholders of record June 2. The company delivers a dividend yield of 2.22% as of May 16.
Tigress Financial analyst Ivan Feinseth maintained a Buy rating on QUALCOMM Incorporated (NASDAQ:QCOM) and raised the price target on the shares to $238 from $195. The company continues its diversification beyond handsets with higher market penetration into connected devices, the analyst told investors in a research note. The analyst said QUALCOMM Incorporated (NASDAQ:QCOM) remains well positioned to benefit from “key secular communication trends”, such as autonomous vehicle technology, infotainment systems, and edge computing.
According to Insider Monkey’s Q4 data, 75 hedge funds placed long calls on QUALCOMM Incorporated (NASDAQ:QCOM), compared to 70 funds in the prior quarter. Alkeon Capital Management held a prominent stake in the company at the end of Q1 2022, with 4.10 million shares worth $626.7 million.
Like Northrop Grumman Corporation (NYSE:NOC), Alphabet Inc. (NASDAQ:GOOG), and Lockheed Martin Corporation (NYSE:LMT), institutional investors are pouring into QUALCOMM Incorporated (NASDAQ:QCOM) for exposure to the drone market.
Here is what ClearBridge Investments Large Cap Value Strategy has to say about QUALCOMM Incorporated (NASDAQ:QCOM) in its Q4 2021 investor letter:
“Market strength continued in the fourth quarter, with only the communication services sector down in the Russell 1000 Value Index. Portfolio returns benefited from the strong performance of semiconductor maker Qualcomm, which has executed exceptionally well in pursuing the transition to 5G, growing both content and share due to its leadership position in cellular technology. The chipmaker recently outlined a number of peripheral growth opportunities outside of mobile markets, including automotive (where it hopes to leverage its strong presence in the automotive infotainment space into advanced driver assistance systems), Internet of Things (including opportunities in the PC market, VR/AR market, and factory automation) and radio frequency (where mmWave adoption globally, including China, would drive substantial upside).”
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Disclosure: None. 10 Best Drone Stocks To Buy Now is originally published on Insider Monkey.
