Geopolitical conflict is always present in this dangerous world. But the ongoing conflict in Ukraine and the late-2023 resumption of heavy fighting in Israel has brought to everyone’s attention the need for robust war-fighting tools and technologies of the sort made by defense contractors. One company poised to perform well due to the need for enhanced global security is AeroVironment (AVAV), counsels Jim Woods, editor of The Deep Woods.
Missile systems, guidance systems, drones, etc., are going to be in even more demand due to these situations, and due to an ever-present threat of mankind’s embrace of war. Yet the reality here is that while “war is hell” for the participants, civilians, and for the world, it’s also a boon for defense companies.
AeroVironment supplies unmanned aircraft systems, tactical missile systems, high-altitude pseudo-satellites, and other related services to government agencies within the United States Department of Defense as well as the United States allied international governments.
The company says that its systems can help with security, surveillance, or sensing, and provide “eyes in the sky” without needing an actual person, or driver, in the sky. So, the “NewsQ” (my term for news that can materially affect a stock) of a company making a product that will be needed to fight future wars is bullish for AVAV.
So, too, are the fundamentals. For example, as of late 2023, AVAV was in the top 16% of all public companies in terms of earnings per share (EPS) growth over the past several years. And in terms of share price performance, the stock’s near-51% gain over the past 12 months (through mid-December) put it in the elite top 8% of all stocks on a relative price strength basis.
Interestingly, on Dec. 5, the company reported strong earnings and raised its full-year guidance, although that guidance was slightly below consensus views. That news prompted some selling in AVAV shares that was just enough to make it look wildly attractive.
Investors with a taste for battle should consider AVAV, as mankind’s penchant for conflict isn’t going away anytime soon. So, while we should pray for peace, we also should prepare our portfolios for war with AeroVironment.