Our Small-Cap Drone Name Faces Opportunity After DoD Ramp Up Report
Though shares on under pressure on the news, there’s no long-term concern.
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According to Reuters, the Pentagon has informed market watchers that the U.S. is currently in the early stages of developing a domestic military drone industry, with production still far below expected levels as the Trump administration pushes manufacturers to eliminate reliance on Chinese components.
The piece reported that Travis Metz, who oversees the Department of Defense’s Drone Dominance Program, said Ukraine is expected to produce 6 million to 7 million first-person-view attack drones this year, or roughly 500,000 per month. By comparison, the U.S. armed forces expect to have ordered just under 200,000 drones through the program by this coming February.
The Pentagon is projected to increase spending on small unmanned aircraft while tightening domestic sourcing requirements. This will create an expanded potential for long-term demand for domestic suppliers of drones, motors, batteries and electronic components. However, these companies will also face higher costs as well as possible supply chain issues as they replace Chinese-made parts with U.S. parts.
The Department of Defense/War recently updated its supply chain policies to emphasize the creation of a fully domestic supply chain for small military drones. Companies participating in next month’s Gauntlet II testing event at Fort Carson, Colorado, must ensure their aircraft contain no prohibited Chinese components, including brushless motors and battery packs.
Ondas Inc (ONDS) is not on the list of participants, but Ondas focuses on a different segment of the market, not on the one-way attack/kamikaze drones being tested. Hence, I do not see this exclusion as a setback. Readers should be fully cognizant that the algorithms that control the point of sale in the U.S. may see this differently. I would see any further sell-off in these shares as more of an opportunity than a problem for the portfolio. That’s my opinion.
Flipping?
Not so much. Of the five attempted “above the market” sales that the portfolio tried on Monday, only one, Inseego (INSG) produced fruit. We came back with four “nothing dones.”
Portfolio News
Rocket Lab (RKLB)
On Monday, we reported that KGI Securities upgraded Rocket Lab to Outperform (buy-equivalent) from Neutral (hold-equivalent) with a $107 price target. We have now identified the analyst behind this rating. That would be Rob Chang. Chang is rated at three stars out of five by TipRanks. He has a success rate of 80% over the past two years with an average return of 17.5%.
SoFi Technologies (SOFI)
On Monday, analyst Vincent Caintic of BTIG reiterated his “hold” rating on SOFI without setting a target price. Caintic is rated at four stars out of five at TipRanks. He has a success rate of 52% over the past two years with an average return of 7.9%.
Upcoming Portfolio Earnings
SoFi Technologies (SOFI)
After the closing bell on Wednesday, July 29. Expected: GAAP EPS of $0.11 on revenue of $1.12 billion. Would compare to the year-ago EPS print of $0.09, reflecting on annual sales growth of 30.4%. The following week, the first week of August, we expect to hear from Inseego (INSG), Evolv Technologies (EVLV), Ocular Therapeutix (OCUL) and Rackspace (RXT).
Monday’s Intentions vs Actual Trades
Intention: Sell 25 shares of (ALTO) at $5.10 or better
Actual trade: Nothing done
Intention: Sell 10 shares of INSG at $7.15 or better
Actual trade: Sold 10 shares of INSG at $7.15
Intention: Sell 10 shares of (PL) at $21.50 or better
Actual trade: Nothing done
Intention: Sell 2 shares of RKLB at $71.00 or better
Actual trade: Nothing done
Intention Sell 20 shares of VELO at $10.50 or better
Actual trade: Nothing done
Tuesday’s Intentions
No trades intended
Current Positions
Long 200 shares of ALTO at $5.3611. Target price: $8. Last sale: $4.53.
Long 80 shares of EVLV at $5.8959. Target price: $8.50. Last sale: $5.53.
Long 40 shares of INSG at $7.7563. Target price: $11. Last sale: $6.94.
Long 100 shares of OCUL at $8.3569. Target price: $11. Last sale: $8.87.
Short one OCUL $11 September 18 call at $1.65. Last sale: $0.73.
Long 250 shares of ONDS at $8.4266. Target price: $14. Last sale: $7.74.
Long 40 shares of PL at $25.3973. Target price: $46. Last sale: $20.47.
Long 4 shares of RKLB at $66.505. Target price: $98. Last sale: $64.84.
Long 100 shares of RXT at $4.886. No target price. Last sale: $3.75.
Long 150 shares of SOFI at $15.994. Target price: $24. Last sale: $16.64.
Short one SOFI August 21 $20 call at $1.02. Last sale: $0.33.
Long 30 shares of SWBI at $15.74. Target price: $19. Last sale: $14.79.
Long 100 shares of VELO at $12.4561. Target price: $18. Last sale: $9.88.
Cash: $115.88.
Portfolio Value: $9,818.99, -1.8% from inception on March 24.
At the time of publication, Guilfoyle was long ALTO, EVLV, INSG, OCUL, ONDS, PL, RKLB, RXT, SOFI, SWBI and VELO.
