Who's Really Profiting from Drone Tech and How to Join Them

Is now the time to bet big on “drones”?

Is this sector ready to take off?

The evidence points to yes – and stocks in this industry seem poised for flight.

But if you’re a believer in this space, stocks aren’t where the real money will be made…

The real money will be made elsewhere.

If we were talking about smaller drone companies… the returns for investors could be huge.

Today, I’ll walk you through why we think this sector is set to soar, and where the real returns will come from.

The U.S. military has used drones – or technically, “Unmanned Aerial Vehicles” – for the last 20 years.

They’ve employed them for a variety of tasks, from routine intelligence gathering to carrying out air strikes against our enemies.

Traditionally, drones were large, expensive aircraft – but like most technologies, their size and price has come done drastically:

Several years ago, the cost of a drone was measured in the millions of dollars; today, a state-of-the-art surveillance drone might only cost $150,000.

We believe that as the cost of drone technology continues to fall, the demand for these devices will skyrocket.

Facebook and Google recently engaged in a bidding war over a small drone manufacturer. These two tech giants intend to use these devices to provide Internet connectivity in remote regions.

But Internet access isn’t where drones will have the greatest financial impact.

Here are three sectors – and a handful of stocks – that could see a significant lift from the drone trend:

1. Finance – A friend of mine works at Thomson Reuters. His job is to secure licensing deals for all of Thomson’s data products.

He was recently telling me about a new “drone data” service they’ve been selling.  In order to get more timely information on retail shopping trends, Thomson will deploy thousands of drones across the US to record shopping mall traffic.

Using a combination of heat sensor technology and advanced video processing algorithms, they’ll know — before the rest of Wall Street — how various retailers are performing, and what consumer spending might look for the coming quarter.

This is valuable stuff. Hedge funds pay big bucks – and earn even more – for access to such timely information.

Expect to see more investors leveraging this technology to get an edge.

You could take advantage of this trend by betting on firms like Thomson Reuters (NYSE: TRI)

2. Defense – Drones were born out of the defense industry.

Between un-manned attack planes and lighter surveillance drones, the defense industry spent an estimated $11 billion last year.

One way to benefit from this trend is to focus on the manufacturers:

If you’re into large caps, look at Northrop Grumman (NYSE: NOC). Or if you’re looking for small-cap plays, definitely take a look at AeroVironment (NASDAQ: AVAV).

3. Retail & E-Commerce – Imagine ordering a book in the late afternoon and having it delivered to your door before dinner? That’s what retailers imagine when they think of drones.

If they can pull it off, companies like Amazon (NASDAQ: AMZN) might benefit greatly. In fact, late last year Amazon announced plans to begin testing drone delivery services in select markets.

All of these stocks could rise as the sector expands…

But the real money will be made elsewhere.

Thomson Reuters, Northrop Grumman, Amazon… these are multi-billion dollar companies.

Sure, unmanned aircraft might improve their businesses a bit – but what are the chances that the impact from drones will move the needle on their stock prices?

Pretty low, if you ask me.

Drone start-ups are just beginning to heat up…

But if we were talking about smaller drone companies – specifically, “start-up” companies that focus all their efforts on this emerging area – the returns for investors could be huge.

Look at what happened when the smart phone sector exploded in 2007:

Your clever bet on Apple would have returned 10 times your money – that’s nothing to sneeze at.

But, alternatively, you could have invested in Zynga, a mobile gaming start-up, when it was still private.

The earliest Zynga investors didn’t make 10 times their money – they made an estimated 163 times their money!

And that’s why we focus on early-stage, private companies when we invest in emerging technologies.

Drone start-ups are just beginning to heat up…

Google outbid Facebook for Titan Aerospace, a small drone manufacturer.

Facebook countered by acquiring a UK drone company called Ascenta.

My business partner, Matt Milner, recently wrote about a new “drone fund.”

Now, thanks to the JOBS Act, you have the opportunity to get involved in tomorrow’s success stories today – while they’re still private start-ups.

We’re keeping an eye on this sector, and we’ll continue to showcase relevant equity crowdfunding opportunities as they arise.

Innovation is coming – and so are potential profits.

Happy Investing!

Wayne Mulligan
Founder, Crowdability
for The Daily Reckoning

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