How you can profit from drones

The sky’s the limit for private drones – well, at least for now.

An administrative law judge has ruled that the Federal Aviation Administration has no business regulating small drones saying they were similar to model aircrafts. The ruling was part of an appeal over a $10,000 fine levied by the FAA against a photographer in Virginia who used a drone to make a commercial video. The FAA is appealing the ruling, maintaining that their job is to ensure safety in the skies.

But that uncertainty is not stopping many companies from seriously experimenting with drone technology. Besides real estate and news applications, companies like Amazon are looking at using drones to deliver packages. Facebook is said to be looking at buying drone-maker Titan Aerospace to provide Internet access to remote regions. In the UK, one Domino’s Pizza franchisee tested out a pizza delivery drone. As a Sunday’s episode of “60 Minutes” points out, drones are becoming more and more commonplace.

So, how can investors make money in this growing business?

CNBC contributor Andrew Busch, editor and publisher of The Busch Update, believes the potential commercial use of drones makes one particular company interesting.  Though many defense contractors such as Boeing and Northrop Grumman are in the drone manufacturing in some way, the company Busch sees as benefitting most is Lockheed Martin.

(Watch: Facebook to fly high with drones)

“Lockheed is interesting because they make drones,” says Busch, “but they make a range of them from a 5 lbs. surveillance one to 12,000 lbs. helicopter that has a 6,000 lbs. sling.”

The variety of drone types makes Lockheed Martin a potential winner if and when drones become the norm.

“Drones are going to be a way of life for us going forward,” says Busch. “Whoever has the range of products to offer different businesses is going to do very well. Lockheed Martin is one of them.”

Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, is a fan of Lockheed Martin’s long-term potential but isn’t rushing to buy shares in the company just yet.

“I love the drone concept and what it could potentially do for Lockheed’s stock,” says Ross. “But, when we pull up a 12-month chart, you can see that a lot of that could already be reflected in the price today, which makes this a less-than-compelling entry point.”

Lockheed Martin’s stock has rallied 80% in the past year and has generally stayed above its 50-day moving average. However, Ross is concerned with a recent double top the stock made at around $168 per share. He sees it now aiming at testing support at $160 per share and it could drop even further.

“A break below $160 sets you up for a retest of the 50-day [moving average],” says Ross. The 50-day moving average is currently at about $156 per share. “Even if you believe in the story longer-term, let’s wait for a pullback. Buy this on some weakness rather than chasing it into today’s headline.”

(Read: U.S. military braces for budget battles with Congress)

Busch agrees that there may be no short-term urgency in the stock but he thinks it has a lot of long-term upside ahead.

“[Drones are] not something that’s going to propel this thing $20 higher today,” says Busch, who notes the company was able to thrive despite defense cuts during the budget sequester. “This is a product that’s going to do well for this company in the long term. So, it’s a long-term buy.”


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