In this article, we will look at the 10 best drone stocks to invest in based on the data of over 860 hedge funds tracked by Insider Monkey. You can skip our detailed analysis of the drone industry and go directly to see 5 Best Drone Stocks to Invest In.
Those among you who have an avid interest in history may perhaps think of war the first time you hear the word ‘drone’ mentioned. However, in the 21st-century, drones have become much more commonplace than they were in preceding centuries, infiltrating the consumer market and becoming associated with more than just the idea of war. For example, by January 2021, over 1.78 million drones were registered by the FAA in the US alone. As a result, they have become part of every day for businesses and consumers alike.
Major companies are now using drones for commercial purposes. According to Bloomberg, the market for drones is expected to reach $58.4 billion by 2026, showing a CAGR of 16.4% from 2021 – 2026. Additionally, the global small drones market size alone is expected to be worth $22.55 billion by 2026, Bloomberg reports.
In the future, drones will continue to become integrated into everyday life. While military drones remain a useful contributor to the drone industry’s growth even today, with it being estimated that military drones would contribute up to $19.6 million by 2026 to the drone industry as a whole, they are certainly not going to remain the sole contributors. The idea that drones can only be used in war and maybe even only in business is rapidly changing, with battery-powered commercial drones taking over the market. The use of commercial drones alone in the market is estimated to grow at a CAGR of 28% by 2026, which is the highest growth rate among all drone sectors, including the government, law enforcement, military, and consumer segments.
Developments in drone technology are the sole reason for this unprecedented future growth. For instance, artificial intelligence is now being incorporated in drones, allowing them to take on additional tasks without being given directions by a human being. Drones can now take off, navigate, collect and transmit data after analysis, and conduct deliveries all on their own. This is also why they are becoming a popular tool in the delivery sector, particularly in medical supply delivery during the coronavirus pandemic. Delivery drones themselves had a market value of approximately $2 billion in 2020, a value expected to grow at a CAGR of 14% until 2026, making it reach $5.6 billion.
With that context in mind, it is evident that the drone industry is becoming ever more profitable and is reaching unprecedented highs. Some of the best drone manufacturing companies, or companies aiding the use and manufacture of drones, are Alphabet Inc Class A (NASDAQ: GOOGL), The Boeing Company (NYSE: BA), NVIDIA Corporation (NASDAQ: NVDA), and Amazon.com, Inc. (NASDAQ: AMZN). These names are also considered to be typically popular stocks among investors. We have thus compiled a list of the 10 best drone stocks to invest in. The stocks on our list were selected based on hedge fund popularity, analysts’ ratings, fundamentals, and future growth potential.
You should practice extreme caution while choosing stocks to invest in amid the increasing financial volatility, which is making things difficult even for the smart money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s now discuss the 10 best drone stocks to invest in.
Best Drone Stocks to Invest In
10. Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS)
Number of Hedge Fund Holders: 16
Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a government contractor for the US Department of Defense. Its Unmanned Systems segment is responsible for the provision of drones and unmanned aerial systems. The company ranks 9th on our list of the best drone stocks to invest in.
Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) received over $46 million this May, due to the company’s support for Space Domain Awareness (SDA) efforts. The company had an adjusted EPS of $0.06 for the first quarter of 2021, beating estimates by $0.01 and $194.2 million in revenue, representing a 14.98% growth year over year, and beating estimates by $3.98 million. Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) also has a gross profit margin of 26.96% and a forward PE ratio of 72.78. The stock gained 2.99% in the past 6 months and 0.61% year to date.
As of the end of the first quarter this year, 16 hedge funds out of the 866 tracked by Insider Monkey held stakes in Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS), worth over $194 million. This is compared to 18 hedge fund holders in the previous quarter, yet with a much lower stake value of roughly $121 million. Like Alphabet Inc Class A (NASDAQ: GOOGL), The Boeing Company (NYSE: BA), NVIDIA Corporation (NASDAQ: NVDA) and Amazon.com, Inc. (NASDAQ: AMZN), Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is one of the best drone stocks to invest in.
9. AeroVironment, Inc. (NASDAQ: AVAV)
Number of Hedge Fund Holders: 16
AeroVironment, Inc. (NASDAQ: AVAV) is an aerospace and defense company that develops products for government agencies and businesses. The company also provides unmanned aircraft systems (UAS), or drones, primarily to the US Department of Defense and international allied governments. It ranks 8th on our list of the best drone stocks to invest in.
This March, a subsidiary of AeroVironment, Inc. (NASDAQ: AVAV), Arcturus AV, bagged a $7 million task order from the US Special Operations Command (USSOCOM). The task order is to last for one year of performance and is meant to provide mid-endurance UAS programs to the USSOCOM. In addition, the company has brought in multiple deals this year apart from this one, including a multi-year order worth $11.53 million approximately, and with a total potential of $80 million, from the NATO Support and Procurement Agency for Puma 3 AE tactical UAS and initial spares packages this April, and an additional $44.9 million increase in a deal through the US Army’s exercise of contract option for switchblade missile systems in the same month, to name a few.
AeroVironment, Inc. (NASDAQ: AVAV) had EPS of $0.14 in the fiscal third quarter of 2021, beating estimates by $0.14. The company also reported revenue of $78.78 million, representing a 27.29% growth year over year and beating estimates by $2.96 million. AeroVironment, Inc. (NASDAQ: AVAV) also has a gross profit margin of 40.11% and a forward PE ratio of 60.20. The stock gained 30.35% in the past 6 months and 30.65% year to date.
As of the end of the first quarter this year, 16 hedge funds out of the 866 tracked by Insider Monkey held stakes in AeroVironment, Inc. (NASDAQ: AVAV), worth over $137 million. This is compared to 16 hedge fund holders in the previous quarter, yet with a much lower stake value of roughly $77 million. Like Alphabet Inc Class A (NASDAQ: GOOGL), The Boeing Company (NYSE: BA), NVIDIA Corporation (NASDAQ: NVDA) and Amazon.com, Inc. (NASDAQ: AMZN), AeroVironment, Inc. (NASDAQ: AVAV) is one of the best drone stocks to invest in.
8. Ambarella, Inc. (NASDAQ: AMBA)
Number of Hedge Fund Holders: 35
Ambarella, Inc. (NASDAQ: AMBA) is a semiconductor design company that creates HD and ultra HD video compression, image process, and computer vision processors. Like NVIDIA Corporation (NASDAQ: NVDA), this company is not a drone manufacturer, but drone companies use its technology. For instance, their chips are some of the best out there when it comes to data extraction. As a result, this company ranks 7th on our list of the best drone stock to invest in.
The company has partnered with Amazon.com, Inc. (NASDAQ: AMZN) to build AI devices that are hardware-accelerated. For the first quarter of 2021, Ambarella, Inc. (NASDAQ: AMBA) reported $0.23 in EPS, beating estimates by $0.06. Revenue for the quarter was reported to be $70.13 million, demonstrating a 28.34% growth year over year and beating estimates by $1.49 million.
As of the end of the first quarter this year, 35 hedge funds out of the 866 tracked by Insider Monkey held stakes in Ambarella, Inc. (NASDAQ: AMBA), worth over $286 million. This is compared to 36 hedge fund holders in the previous quarter, with a stake value of roughly $377 million. Like Alphabet Inc Class A (NASDAQ: GOOGL), The Boeing Company (NYSE: BA), NVIDIA Corporation (NASDAQ: NVDA) and Amazon.com, Inc. (NASDAQ: AMZN), Ambarella, Inc. (NASDAQ: AMBA) is one of the best drone stocks to invest in.
7. GoPro, Inc. (NASDAQ: GPRO)
Number of Hedge Fund Holders: 36
GoPro, Inc. (NASDAQ: GPRO) is a developer of cameras, drones, and mountable and wearable accessories in the US and internationally. Their GoPro app provides users with a platform for editing and sharing pictures and videos. The company ranks 6th on our list of the best drone stocks to invest in.
For the first quarter of 2021, GoPro, Inc. (NASDAQ: GPRO) announced an adjusted EPS of $0.03 versus the estimate of $0.0. The company also brought in $203.68 million in revenue for that quarter. It also has a gross profit margin of 36.47%. GoPro, Inc. (NASDAQ: GPRO) gained 33.86% in the past 6 months and 46.6% year to date.
As of the end of the first quarter this year, 36 hedge funds out of the 866 tracked by Insider Monkey held stakes in GoPro, Inc. (NASDAQ: GPRO), worth over $395 million. This is compared to 28 hedge fund holders in the previous quarter, with a stake value of roughly $339 million. Like Alphabet Inc Class A (NASDAQ: GOOGL), The Boeing Company (NYSE: BA), NVIDIA Corporation (NASDAQ: NVDA) and Amazon.com, Inc. (NASDAQ: AMZN), GoPro, Inc. (NASDAQ: GPRO) is one of the best drone stocks to invest in.
Roubaix Capital LLC, an investment management firm, mentioned GoPro, Inc. (NASDAQ: GPRO) in their fourth quarter for 2020 investor letter. Here’s what they said:
“Companies like GoPro (GPRO) should benefit from the consumer rebound, but also have their own unique drivers of value over the next 2+ years. In the case of GPRO, the company launched its newest action camera, the GoPro9, under the umbrella of a new business model. The company offers a discount on the camera when customers purchase a subscription agreement that comes with additional services and benefits. The uptake of the subscription has been strong to date and offers the company a line of sight to a higher margin and more predictable revenue stream. The stock’s low double digit earnings multiple remains undemanding. We have seen this type of transformation play out in numerous situations in software, hardware and even retail companies such as RH. We see GPRO following suit and expect a return to travel later this year to be another reason for consumers to buy a new camera as they head back out on vacation.”
6. Alphabet Inc. (NASDAQ: GOOG)
Number of Hedge Fund Holders: 159
Alphabet Inc. (NASDAQ: GOOG) is the parent company of Google, and provides online advertising services in the US and internationally. It operates through the Google Services, Google Cloud, and Other Bets segments. The company’s subsidiary Wing develops technology for drone-based deliveries. Alphabet Inc. (NASDAQ: GOOG) ranks 6th on our list of the best drone stocks to invest in.
On June 24th, Alphabet Inc.’s (NASDAQ: GOOG) Google Cloud and India’s Jio partnered on 5G solutions. Google Cloud is expected to provide a cloud offering for a fully automated lifecycle management for the latter’s 5G network. In the first quarter of 2021, Alphabet Inc. (NASDAQ: GOOG) had EPS of $26.29, beating estimates by $10.63, and its revenue came in at $55.31 billion, representing a 34.39% growth year over year and beating estimates by $3.62 billion. The stock has gained 43.33% in the past 6 months and 47.3% year to date.
As of the end of the first quarter this year, 159 hedge funds out of the 866 tracked by Insider Monkey held stakes in Alphabet Inc. (NASDAQ: GOOG), worth over $29 billion. This is compared to 157 hedge fund holders in the previous quarter, with a stake value of roughly $20.5 billion. Thus, like The Boeing Company (NYSE: BA), NVIDIA Corporation (NASDAQ: NVDA), and Amazon.com, Inc. (NASDAQ: AMZN), Alphabet Inc. (NASDAQ: GOOG) is a good drone stock to invest in.
Artisan Partners, a high value-added investment management firm, mentioned Alphabet Inc. (NASDAQ: GOOG) in their first-quarter 2021 investor letter. Here’s what they said:
“Large-cap tech companies have been resilient through the pandemic—Alphabet among them. A top contributor, Alphabet’s Play Store and Google Cloud are in demand as businesses accelerate online activity which, along with strong YouTube user growth, is helping stabilize temporarily weaker search ad revenue trends. Through the lens of our disciplined bottom-up research process, we view Alphabet as one of the best businesses in the world, capable of expanding revenues at a rapid rate for years to come, with a bullet proof balance sheet and an average asking price. It’s a name we’ve owned since 2012 and for which we continue to have high hopes regarding future prospects.”
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Disclosure: None. 10 Best Drone Stocks to Invest In is originally published on Insider Monkey.
