Imagine a squadron of battle-ready drones flying alongside U.S. military fighter jets. It’s not a video game. It’s part of a Pentagon plan to reduce costs, suggests Jon Markman, growth stock expert and editor of Strategic Advantage.

A jet powered Valkyrie drone successfully buzzed the skies of Yuma Arizona, according to an Air Force press release. The 29-foot aircraft might be the shape of things to come. It might also open a new sales channel for defense contractors.

Military aircraft are expensive and often plagued with development problems. The standard version of the F-35 fighter jet costs $89.2 million. The XQ-58A Valkyrie project might provide a solution. At only $2 million to $3 million a pop, it’s cheaper than the cost of a Patriot missile.

But its real appeal is the potential to fly alone or as part of a swarm, controlled by a manned aircraft or from ground control. Squadrons of Valkyrie could serve as wingmen to expensive, piloted fighter jets, flying ahead to strike or surveille enemy targets -- just like in video games.

The best way for investors to play wingman drones and other cutting-edge aircraft is TransDigm Group (TDG), a little-known Cleveland component maker.

The company makes mission-critical pumps and valves, actuators and motors, quick disconnects and couplings, batteries, chargers and other systems that keep commercial and military planes in the sky. It is not a glamorous business, but it is extremely lucrative, by design.

TransDigm managers don’t think like engineers. They behave more like investment bankers, looking to acquire businesses that will spin off private equity-type returns to investors. Since 1993, they have acquired 60 OEM aerospace parts businesses with these profiles.

The company is now the sole supplier for 80% of the end markets it serves. And 90% of the items in the supply chain are proprietary to TransDigm. In other words, the company is operating a monopoly for parts needed to operate aircraft that will typically be in service for 30 years.

Sales grew 8.8% in fiscal 2018, to $3.8 billion. The company earned $905.4 million in profits. That trend continued in the fiscal first quarter results, as the company earned $196 million in profits on $993 million in sales.

While shares trade at 6x sales and 25.3x forward earnings, expensive by aerospace standards, the company is more like a successful private equity fund.

Managers are uniquely motivated to increase shareholder value and they have an enviable record. Shares are up 2,503% since 2009. TransDigm has pulled back in recent weeks; you can buy it now around the $430-$435 area.

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