Dear Reader,
Good morning, and happy Friday!
As we close out August, I wanted to address some of the questions I’ve been receiving about AeroVironment (AVAV).
This week, shares of AeroVironment jumped over 10% after the company won a billion-dollar contract to produce drones for the Pentagon.
It’s a significant development, and many of you are asking if now is the time to buy.
Let’s put this into context.
We originally recommended AeroVironment at $88 per share, and back in May, we sold half of our position at $189, locking in a 114% gain.
It was a strategic move—taking profits after the stock ran up so quickly.
But we’re still holding the other half, and with that initial gain secured, we’re essentially playing with house money on the rest.
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NVIDIA buys 7 million shares of AI-biotech.
There’s an AI biotech selling for under $10 a share that seems poised to soar in 2024…
ARK Investment recently bought 6.8 million shares…
Bayer just signed a deal worth as much as $1.5 billion to have them develop new drugs…
And NVIDIA has just partnered with them.
Get the name of the stock here.
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Now, with this recent news, I understand the temptation to buy more.
After all, a billion-dollar contract is no small deal, and Baird even raised its price target to $220 per share—about 10% higher than where it currently sits.
But here’s the thing: at around $200 per share, AeroVironment is trading at 28 times expected earnings.
For a company in the government contracts business, that’s a pretty rich valuation.
When a stock jumps after announcing a major contract or strong earnings, what’s really happening is that Wall Street is revaluing the shares.
They’re saying, “This company deserves a new, higher valuation because of this material news.”
But that doesn’t necessarily mean the stock is breaking out to new highs that you should chase.
In AeroVironment’s case, this contract is going to add about $50 million per quarter to their revenue, which is great.
It provides more visibility and consistency.
But it doesn’t fundamentally change the business.
AeroVironment is still growing at an above-average rate, and it’s in the defense sector—a sector that’s relatively recession-resistant given the steady military spending.
The reason we’ve been successful with defense stocks like AeroVironment is because we’ve focused on how warfare is evolving.
We’re in the midst of a fourth revolution in warfare, driven by software, AI, drones, and swarm technology.
Identifying the companies best positioned to benefit from this shift has been key to our success.
In the special report that includes AVAV, we recommended four stocks, three of which have doubled.
AeroVironment has been a good one for us, but I don’t see this latest contract as a fundamental game-changer—more of a revaluation.
So, my recommendation is to hold our current position.
Don’t let FOMO (fear of missing out) drive your decisions.
Because there are other plays on the horizon that will give you another chance at returns like that.
Like the company building a “UFO Weapon” that is currently the Pentagon’s number one priority.
Because at 28 times earnings, AeroVironment is priced for those who might not know better.
We’re better off letting them buy it from us.
Have a great day and a wonderful weekend ahead!
“The Buck Stops Here,”
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