Strong Defense, Big Profits

In This Issue: Strong Defense, Big Profits Knowing When to Cash In   My Top 5 Australian Millionaire-Makers My top pick is one of the shining stars of Australia's energy infrastructure business. It operates two-thirds of Australia's onshore natural gas pipelines. It operates 15,000 miles of pipeline, servicing 1.2 million households. It's a primary supplier to Japan and China, two of the world's fastest-growing LNG importers. We've already doubled our money, but growth rates are so impressive, we'll double again. The time to get in is now. Plus, I have 4 more profit opportunities that await you Down Under. Don't wait. The profitable details are here. Strong Defense, Big Profits 9/25/2014 By Thomas Scarlett The unmanned aerial vehicle (UAV) is revolutionizing military action around the world. Concern about the deficit may cause certain Pentagon programs to be cut, but UAV procurement will likely survive unscathed. AeroVironment (NASDAQ: AVAV) is the leading maker of UAVs. Paul MacCready, a designer of human-powered aircraft, founded the company in1971. AeroVironment is the Pentagon's top supplier of small drones --- including the Raven, Wasp and Puma models. They have signed a strategic partnership with Lockheed Martin Corp to develop their 'Global Observer' to provide "persistent airborne observation." The California-based company boasts a pipeline stuffed with innovative products that the military brass covets, but the stock is now attractively valued because of a dip in the previous quarter's sales. This setback has more to do with Washington's budgetary shenanigans than with long-term demand. The firm was just recently awarded a $22 million contract to provide small unmanned aerial systems and spare parts to theU.S. Marine Corps. The USMC ordered an unspecified number of the company'sRQ-12 Wasp AE drone and the company expects to complete deliveries within one year, AeroVironment said. The 2.8-pound UAS is designed with a Mantis i22 miniature gimbaled camera system and built to fly at a maximum range of 3 miles for up to 50 minutes. AeroVironment developed the WASP AE to be hand-launched, land on the ground or in the water and support military reconnaissance operations. The company received the order from USMC partner ADS under the Defense Logistics Agency's tailored logistics support program. AeroVironment has also revealed that the U.S. Army has released $13.8 million in incremental funding to pay for additional units of the company's RQ-11B Raven UAV. The Pentagon has awarded the company a total of $65.5 million to produce UAVs this year for the Army and the money is now getting shaken loose. The Raven is a 4.5-pound UAV that's carried in a soldier's backpack and launched by throwing into the air. The device wirelessly sends day and night real-time video imagery back to a ground controller for battlefield reconnaissance. UAVs have become a ubiquitous feature on the 21st century battlefield, since combat operations were launched in Iraq and Afghanistan in 2001. By that year, the US armed forces had started to deploy a wide variety of UAVs, with the Air Force in the forefront. The Predator drone, made by the private company General Atomics, has become synonymous with UAVs in the popular imagination. However, AeroVironment offers a broader array of UAV products than any of its competitors, especially ultra-sophisticated drones predicated on nanotechnology. The company's UAVs provide a range of military and civilian functions and feature such evocative names as Raven, Wasp, Puma and Switchblade. The company also makes systems for cleaner, more efficient transportation and energy production. AeroVironment commands 30.82 percent of the world's unit production of UAVs, giving it the biggest market share by far of any UAV manufacturer. By contrast, the maker of the storied Predator drone---General Atomics---only holds a 7.24 percent share. UAVs are the most dynamic growth sector of the aerospace industry. According to a new study from Teal Group, an aerospace consultancy based in Fairfax, Virginia, the worldwide UAV market will nearly double over the next decade---from $6.6 billion in research, development, test and evaluation (RDT&E) and procurement expenditures in 2103, to about $11.4 billion in 2022 (see chart, below). The biggest catalyst for this global growth is enormous demand for UAVs by the US military, stemming from operations in Iraq and Afghanistan, as well as the trend towards information warfare and net-centric systems. UAVs are a crucial component in the emergence of intelligence, surveillance, and reconnaissance (ISR). They've also expanded beyond ISR and into combat missions, with the advent of the Hellfire missile-firing UAVs that regularly make the news. While the Clinton administration in the 1990s preferred the use of Tomahawk cruise missiles to extend the global reach of military force, the George W. Bush and Obama administrations have decisively shifted in favor of hunter-killer UAVs. According to a study by the Teal Group, the US will account for 62 percent of all research spending on UAV technology over the next decade, and about 55 percent of the procurement. However, the study also expects the Asia-Pacific region to represent a growing segment of UAV demand, as countries there become increasingly affluent and militarily assertive. AeroVironment's revenue shortfalls in the most recent quarter represent delays in order timing---not lost orders. Accordingly, the company has recalibrated its expectations for the remainder of 2014 and full-year 2015 and expects demand for its UAVs to significantly increase in future months. Now is the time for investors to strike, while this top defense contractor flies under the radar at bargain levels. Tom Scarlett is an investment analyst at Personal Finance. Canada vs. the U.S.? Often we don't think much about Canada. Seems like they're just that little country to the north. A trading partner and occasionally a vacation spot. Friendly and overly polite. Not much more. Turns out, that's a mistake. That friendly little country to the north has usurped 18.2% control over the Fed. Yes, our Fed – the biggest Central Bank in the World. Just what are Canada's plans for the Fed? And how did this all happen? Surprisingly, there's a play here for the savvy investor… Click here for full details. Knowing When to Cash In 9/24/2014 By Jim Fink Picking the right stocks is only half the battle. You have to know when to sell. This can be harder than you think: having done enough research to appreciate the positive aspects of a company, you may be inclined to disbelieve information that its expansion strategy is not working out as well as predicted, or that the stock price is simply overvalued. One of the investment choices at Roadrunner Stocks that I am proudest of this year was my "sell" recommendation on Carbo Ceramics (NYSE: CRR) on June 5 of this year. At the time the stock price was up around 136. Since then, it has collapsed by more than 50 percent in less than four months. At last look it was selling at around 66. Quite a drop! Here's what I wrote at the time: "Carbo Ceramics is still a great company, but its stock price appears fully valued and has run up on speculation concerning its Kryptosphere proppant for deepwater drilling applications. Given the forecast for deepwater slowdown, the excitement over Kryptosphere is probably overdone and setting the stock up for disappointment. In any event, Carbo Ceramics is the most expensive stock in the Value Portfolio, has a high short interest-to-float ratio above 20%, and no longer qualifies as cheap, so it's time to let go." Why were we in favor of Carbo Ceramicsto begin with? The firm recently introduced its most high-tech ceramic proppant to date: Kryptosphere. This new proppant targets the deepest (30,000+ feet down), highest-pressure deep-water wells in the Lower Tertiary of the Gulf of Mexico. The pressure per square inch (OSI) in these deep-water wells can exceed 20,000 pounds and Kryptosphere is the only proppant that can handle this enormous stress level without collapsing.According to Carbo, Kryptosphere is the "strongest, highest conductivity proppant ever made." Besides the fact that Carbo raised its dividend for 13 consecutive years and has a debt-free balance sheet, the main reason I liked Carbo is its technological leadership. Many oil and gas drillers are penny wise and pound foolish, choosing cheap proppant based on sand or inferior ceramics from China, Brazil, or Russia. Although these inferior proppants have a quick payback period, they damage the wells and make them much less productive over their lifespan than would be the case if they had used Carbo's state-of-the-art proppant. Carbo CEO Gary Kolstad has been making the rounds of investment conferences educating analysts and the investing public about the increased estimated ultimate recovery (EUR) available from using Carbo's proppant and hopefully he is making headway. Drillers aren't stupid and eventually will understand that it is better to spend more up front for high-quality proppant if it means a higher present value of total profit over time. Furthermore, Carbo's technological advances in deep-water proppant will have beneficial effects on its entire line of proppant. CEO Kolstad stated the following about Kryptosphere: What we've learned in creating this new proppant will now benefit the rest of our proppant. I would be surprised if we don't obsolete all of our products. My dream is that we are going to create something here and obsolete everything we've ever made up to this time. And in fact, we're in little bit of a journey right now to figure out the capital cost to do conversions on plants to that. So if we do that and we hope we can maintain a similar cost structure, we certainly will obsolete a lot of these poor proppants like the Chinese. One of the main components of competitive advantage is differentiation, and Carbo's Kryptosphere technology may be the differentiator that maintains Carbo's market-leadership position with high profit margins for years to come. So while the long-term fundamentals of the company remain strong, the price simply rose too quickly. A lot of other people shared our enthusiasm for the company, basically. I like to think we were among the first to take our profits and run, though! This is why it's so important to subscribe to Roadrunner Stocks. You can find "stock tips" anywhere. Sell signals are harder to come by -- but they can make all the difference. This article originally appeared in the Small Cap All-Stars column. Never miss an issue. Sign up to receive Small Cap All-Stars by email. A Government Windfall Obamacare places huge penalties on doctors who don't switch to electronic health records. It's the law, and all must comply or face stiff penalties. It's not just doctors. It's pharmaceutical firms, insurance companies, medical device companies and more. The deadline to switch is 2015. Four companies have no choice but to reap a spectacular government-legislated windfall. And the profits are just getting started. You don't want to miss it. Details here. 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