Here's How I'm Riding the Kratos (Unmanned) Rocket
Something is moving the flow of capital into this group and valuation has nothing to do with it.
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One thing I think we've learned by watching the war in Eastern Europe from afar is that the days of what service members my age and even those much younger were trained to do, has passed.
There was a time when one could avoid giving off a heat signature merely by covering and caking exposed skin with mud. There was a time when combatants used to pop flares in order to expose troops caught out in the open.
There was a time when closing one eye as soon as said flare had been popped would preserve one's own natural night vision, because what is now referred to as night vision was nowhere near being invented just yet. We used to patrol with gaps between five and ten meters between troops so that one grenade, one landmine or one IED would only get one guy.
As we see video of the war between Russia and Ukraine, we see some soldiers run, and some soldiers stop and give in to the inevitable as infantry style warfare has been carried out by drones.
The advent of unmanned and even sometimes autonomous vehicles for military purposes has some wondering why we are even developing next-generation fighter jets, next generation tanks or next-generation submersibles. One the one hand these types of vehicles might replace their manually operated counterparts. On the other hand, they could be developed to accompany manually operated vehicles and behave as a swarm of smaller aircraft or armed vehicles acting with a centralized brain or nervous system with a fighter pilot or tank commander still running the show.
The Who?
Major defense contractors prominent in the production and provision of unmanned aerial vehicles to the Department of War are a list of names from the defense and aerospace industry that have been around forever — Northrop Grumman (NOC) , Boeing (BA) , RTX (RTX) , also known as Raytheon Technologies, and Lockheed Martin (LMT) . Also considered leaders in the field are General Atomics, which is a privately held company and AeroVironment (AVAV) .
Then we also have Andruil Industries, whose focus is artificial intelligence-driven autonomy so drones won't have to be controlled by someone somewhere but will think for themselves. Don't be surprised to learn that Andruil is working closely with Palantir Technologies (PLTR) and Nvidia (NVDA) to make that happen.
Last but certainly not least, we have to mention our old friend Kratos Defense & Security Solutions (KTOS) . Kratos operates its business through two segments. First, the Government Solutions segment intelligent surveillance and reconnaissance using space, satellite-based and cyber tools as well as microwave electronic products, turbine technologies and rocket support services.
The Unmanned Systems segment provided unmanned aerial, unmanned ground-based and unmanned seaborne vehicles and services related to command and control. The idea is to provide for the mission-critical needs of the Department of War, the U.S. intelligence agencies and other classified domestic agencies.
Kratos
Kratos will report quarterly results in about a month's time. For the firm's fiscal third quarter, Wall Street is looking for adjusted EPS of $0.12, on revenue of roughly $323.4 million. If that's what hits the tape, that would compare to the year-ago comp of $0.11 on annual revenue growth of 17.2%.
This would be a second straight quarter of 17%+ sales growth for Kratos with a third expected for the fourth quarter after suffering three successive sub-par quarters from late 2024 into early 2025.
Investors should be aware that KTOS trades at more than 180 times forward-looking earnings. Expensive? Or maybe something huge is being priced in that is not quite news yet. Just speculating, but AVAV is trading at 99 times. Something is moving the flow of capital into the group and valuation has nothing to do with it.
Like so many other stocks I am tracking and invested in right now, KTOS is breaking out of an upward-sloping trend. Is this the year-end melt-up? I do think we are very likely to still get one of those, but I also think the market will try to shake us out before that happens.
Santa is coming. The holiday season is coming. We may have to fight through some barbed wire before we get to November. Maybe not, but we are always ready, right?
Just look at Relative Strength in the above chart. Just look at the daily MACD (moving average convergence divergence) below the chart. Everything here screams "overbought," which is precisely why I am skeptical that this stock or its closest peers really are.
I am using the upper trendline of this raff Regression model as a pivot and off of that I am using a price target of $108. That said, this is not a pivot created by a legit technical pattern. This is something I am using so I am not flying blind.
I'm up three figures in this name (which does not make it special in this market) so I can be liberal in the application of my 8% rule, which I have not dragged all the way up here.
I will add to my long position in between the 21-day EMA (exponential moving average), but panic should the 50-day SMA (simple moving average) crack. Other than that, I'm here for the rocket ride.
A trader who missed the move, but would initiate at that 21-day line could write November 7th $82 puts for about $2.75. Just an idea.
At the time of publication, Guilfoyle was long NOC, BA, RTX, PLTR and NVDA equity.
