Defense Stocks: A Look At Innovations

by: Edgar Ambartsoumian

It is the first robotic hummingbird made by AeroVironment (NASDAQ:AVAV) that will soon annoy the insurgents out of their nests. This precision hovering two-winged bird looks and behaves like an actual hummingbird with a slight difference; it has a small camera mounted to it for reconnaissance missions. Think of it as a tiny UAV (Unmanned Aerial Vehicle) that will be very difficult to shoot at. During a prototype presentation, this Nano Hummingbird was able to fly in and out of a small doorway entrance and record its surroundings for 11 minutes. It can fly sideways, climb and descend vertically, as well as fly forward and backward. This is one of many innovations from this 40 year old company, which is quickly taking a lead role in unmanned aircraft and efficient energy systems.

Despite the stock’s bullish performance in the last three days, company is considered slightly overvalued compared to S&P’s fair value calculation of $27.70. Nevertheless, my belief is that company’s strong balance sheet, conservative liabilities use, combined with unmatched expertise and relentless innovations could be compared to Apple’s (NASDAQ:AAPL) good old days in tech space, which was yesterday?

Another innovation that I am elated over is Boeing’s (NYSE:BA) Echo Ranger, a 10,500 lb UUV (Unmanned Underwater Vehicle), that is being tested at Catalina Island in sunny California. The purpose for this vehicle is for intelligence gathering, surveillance, reconnaissance, and even environmental work. It was first designed in 2001 specifically for the oil and gas industry to take high resolution sonar images of sea floors. Now, it is able to spend 70 days under water and can submerge approximately 10,000 feet and gather speeds of up to 8 knots. I am anxious to see this model expand its capabilities, carry long range torpedoes and complete covert operations.

Boeing is currently trading below its 50-day moving average of $68.33 and 200-day moving average of $69.97 with a rising relative strength index of 44. Regardless of the company’s massive debt, Boeing has a return on equity of approximately 90% and was able to grow its earnings per share by 137% in the last year. Dividends have grown 9.86% in the last 5 years, currently at $1.68 a year.

Company just received a new order of 100 Boeing 737 airplanes from Delta Air Lines (NYSE:DAL) as the current fleet is not as fuel efficient nor as cost effective to maintain. The deal was said to be valued at $8.6 billion. Some of Boeing’s notable competitors are Embraer S.A (NYSE:ERJ), Northrop Grumman Corp. (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT), United Technologies Corp. (NYSE:UTX), and Raytheon (NYSE:RTN).

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BA over the next 72 hours.

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