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Stocks: Iraq Crisis, Need for Combat Drones May Boost AeroVironment


The stock could trade into the low $40s.

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I haven't written about AeroVironment (NASDAQ:AVAV) in some time, but in my view, this is the best drone name for military applications.

A company profile on Reuters has this description:

Unmanned Aircraft Systems

The Company's small UAS, including Raven, Wasp and Puma, are designed to provide valuable ISR, including real-time tactical reconnaissance, tracking, combat assessment and geographic data, directly to the small tactical unit or individual warfighter, thereby increasing flexibility in mission planning and execution.

If that doesn't describe what the US army will likely be using a lot more of in the coming years, I don't know what does.

I typically don't like playing news driven-type names (e.g., buying a defense contractor because the US might enter another conflict).  I much prefer to buy names I like when they are at the best values -- before catalysts and before the early turn technical setup, much like Twitter (NYSE:TWTR), Splunk (NASDAQ:SPLK), FireEye (NASDAQ:FEYE), and others have been demonstrating in recent days and weeks.

What I do like about AeroVironment is that it didn't spike yesterday. In fact, I thought it would have been up 5% if not more due to the conflict in Iraq. Thus, the name is catching my attention. So far, I've resisted the urge to buy the stock, but I may put a stake in the ground.

Bottom line: If the US does start sending drones for support missions, I think it will be hard to keep AeroVironment from moving into the low $40s if not higher.

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Positions in TWTR, SPLK, FEYE

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