A No Brainer With 200% Profit Potential

| May 13, 2010 | 0 Comments

High above the battlefield they silently fly.  Their electronic eyes capturing every detail on the ground below.  Unsuspecting targets don’t even notice them (until it’s too late).

What am I talking about?

Unmanned aerial vehicles (UAVs) of course.

These amazing remotely controlled aircraft are performing essential military roles in conflicts around the globe.  They’re ideal for missions considered too “dull, dirty, or dangerous” for manned aircraft.

UAVs are used mostly for reconnaissance missions.

They’re outfitted with sophisticated video cameras, sensors, radar, and communications equipment.  This state of the art hardware enables UAVs to transmit surveillance imagery in real-time.

This capability provides a huge advantage for the troops.

Commanders on the ground can get a real-time look at enemy positions.  With this information, they can make quick and informed decisions that save lives.

And best of all, the information is obtained without ever putting a pilot in harm’s way.

UAVs are also used for armed attacks.

The cameras are easily replaced with targeting systems and missiles.  Now the UAV is a silent, deadly assassin in the sky.  They can locate a target on the ground and fire a laser-guided missile to take him out.

And once again, no pilot’s life is ever at risk.

There’s no question UAVs have become an essential tool and weapon of the U.S. military.  Back in 2001, the military had about 200 UAVs.  Today, they have nearly 7,000.

And billions of dollars in more spending is on the way.

The Pentagon has budgeted $24 billion over the next five years for UAVs.  A staggering sum all by itself.  However, an independent research firm says the Pentagon is really going to spend much, much more.

A whopping $80 billion over the next decade to be exact.

That makes UAVs one of the fastest growing areas of the entire military budget.

So, how can you make money from this trend?

One way is to add some shares of Raytheon (NYSE: RTN) to your portfolio.  RTN is a $22 billion aerospace and defense systems supplier.  The company is best known for their industry leading missile and radar systems.

However, RTN has also become a major player in a critical UAV market.

They are now the leading supplier of sensors for UAVs.  Sensors are the cameras, radar, and other devices used to conduct surveillance and gather intelligence.

Here’s the key.

Sensors are the fastest growing area of the UAV market.

Last year, RTN’s UAV sensors accounted for about 17% of their $25 billion in sales.  And, the strong demand for this critical technology should help drive growth at RTN for several years.

Despite the company’s dominance in UAV sensors, RTN is misvalued by the market.

At a recent price of $58, the stock has a P/E of just 11.6x the 2010 estimate of $5.01 a share.  That’s well below the defense industry’s P/E of 29x.  And, it’s even less than the S&P 500’s P/E of 24x.

Not what you’d expect for a market leader.

Another reason why I like RTN is their dividend.  The company just bumped the dividend up 21% to $1.50 per share.  That translates to an annual yield of 2.70%.  Not too shabby.

RTN is a great way to get exposure to the fast growing UAV market.  They should provide steady returns for several years to come.  And, you get a nice dividend to boot.

However, if you’re looking for something a little more exciting, with a lot bigger profit potential, then I suggest you take a look at my Penny Speculator service.

In it, I just recommended a tiny company in this sector that supplies critical equipment for UAVs.  Ratheon’s their top customer and their revenues are surging.

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Category: Penny Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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