Is It Time to Consider Investing in Space Companies?
There are people who love Elon Musk’s SpaceX venture, and others who think it’s pie-in-the-sky ridiculous. Regardless of your opinion, there’s one thing for certain: public space companies are on the rise. The best space industry stocks are poised for historic gains, but investors will need to look beyond Elon Musk and SpaceX in order to benefit from them.
Don’t get me wrong, SpaceX is a phenomenal company; it single-handedly revived public enthusiasm for space exploration!
But, as an investor, I don’t care about SpaceX at all. At least not until it goes public.
What I really want are space companies to invest in, stocks that trade on a public exchange like Apple Inc. (NASDAQ:AAPL) and Tesla Inc (NASDAQ:TSLA) do.
SpaceX can’t fulfill that need, because it is still privately held. Elon Musk and his financiers are keeping it away from retail investors. But that won’t be a problem; I have identified three other opportunities in the sector.
These companies offer significant upside, particularly through military contracts (that can stretch into the billions of dollars). All of them have working relationships with the Pentagon, meaning the increases in defense spending are likely to bolster their respective share prices.
If you’re worried that SpaceX will suck up all the funding, stop worrying. There’s more than enough demand to go around. After all, NASA decommissioned the Space Shuttle program in 2011 specifically to make room for private contractors.
The U.S. government basically handed over the business of putting satellites into space—we’re talking about billions of dollars!
How Space Launches Became Big Business
Until very recently, space exploration was firmly in the province of nations. It took the might of an entire government to launch rockets from the Earth’s atmosphere.
Elon Musk and SpaceX changed that story.
After making a fortune selling PayPal Holdings Inc (NASDAQ:PYPL), Musk decided to build a space company. He traveled to Eastern Europe in search of old rockets. Eventually he managed to design and launch one…
…it failed. He launched again. That failed as well.
It was only on Musk’s fourth attempt, when SpaceX was teetering on the verge of bankruptcy, that his rocket took to the sky with success. Since then, he scaled up his ambitions to include vertical landings, reusable rockets, and a permanent colony on Mars.
But he wasn’t the only one looking skyward.
There were several other companies that entered the market early. Here are just a few of the best space industry stocks that investors can invest in.
SPACE INDUSTRY STOCKS
|Company||Market Cap||Annual Revenue|
|Lockheed Martin Corporation||$78.2B||$47.2B|
|Orbital ATK Inc||$5.6B||$3.2B|
While these companies were busy setting up shop, NASA was in the process of shuttering its Space Shuttle program. The idea was to let private contractors handle the relatively mundane task of putting shuttles into orbit.
NASA figured that public space companies would find ways to reduce the cost of each launch, which is exactly what happened. SpaceX invented “reusable rockets” to slash costs.
These rockets land vertically after falling back to Earth, leaving them intact for repeat use. It is a major step for the space industry, since building new rockets is expensive, not to mention highly inefficient. Can you imagine if airlines discarded planes after every flight? It would be absurd.
So far, SpaceX and Blue Origin are the only two companies to have landed a reusable rocket, but this technology will eventually spread throughout the industry. We expect costs to plummet as public space companies launch more frequently.
Best Space Industry Stocks for 2017
This downward trend in expenses is creating an ideal moment for investing in space stocks.
However, some investors still think investing in space exploration is too far-fetched, too distant, to be real. It’s a psychological trap that a lot of investors fall into. They can’t take advantage of an emerging technology because of their bias towards the status quo.
But I’m not complaining. Their loss is our gain, so long as we act decisively. So, without further ado, here are three public space companies that could be the best space industry stocks for 2017.
1. United Launch Alliance
United Launch Alliance (ULA) is a joint venture between Lockheed Martin Corporation (NYSE:LMT) and Boeing Co (NYSE:BA). It is the No. 1 rival to SpaceX, having secured 100% of all military launch contracts between 2006 and 2016.
ULA’s good relationships at the Pentagon are hardly a surprise. Lockheed and Boeing are embedded in the military-industrial complex, which gives them an edge in defense-related contracts.
They have been much slower to experiment with reusable rockets, but that may be a stalling tactic. (Source: “United Launch Alliance chief plays down reusable rockets,” Financial Times, April 6, 2017.)
In fact, ULA’s behavior reminds me of an old saying: “The first one through the wall gets bloody.” This basically means that there are hidden costs to being first, risks that SpaceX must shoulder if it wants to beat others to market.
The failed landings, the explosions, the lost business—SpaceX is suffering those casualties, yet ULA can swoop in with its own version of the technology once the technology is perfect.
You can see the appeal; that strategy would enable LMT stock and BA stock to soar to enormous upside, without much of the downside. Since these assets have outperformed in recent years, I believe that triple-digit gains are possible through investing in space stocks.
Chart courtesy of StockCharts.com
2. Orbital ATK Inc (NYSE:OA)
Orbital ATK Inc (NYSE:OA) was formed in 2015 as the result of a merger between Orbital Sciences Corporation and Alliant Techsystems. Nearly all of its 12,000 employees are engineers, scientists, or technologists. Only 1,000 have management or administrative roles.
Like ULA, Orbital has deep roots in the Pentagon and other government agencies. It’s even headquartered in Dulles, Virginia, close to the halls of power.
This is extremely important, as the firm needs to maintain good relations with government agencies. Contracts—like the ones to resupply the International Space Station—provide crucial revenue to public space companies. Orbital can’t afford to lose those contracts.
The company came very close to losing one after its “Antares” rocket exploded in 2014. It has taken a long time for the firm to get back on its feet, but that’s often the case with great investments. You only stand to make a fortune on them if other investors are skeptical.
Right now, Orbital is on the verge of launching its new rocket. If it is successful enough to secure more contracts, the share price will likely surge. But, until that launch goes smoothly, most investors are going to remain wary of the stock. They don’t want to take a risk, which is perfectly fine if you’re a “slow growth” type of investor.
But, if you’re looking for rapid returns, OA stock might be the ticket.
Chart courtesy of StockCharts.com
3. AeroVironment, Inc. (NASDAQ:AVAV)
Not all of the best space industry stocks are like SpaceX. Some of them, like AeroVironment, Inc. (NASDAQ:AVAV), are lower-profile, but they’re just as essential.
This aerospace and defense contractor builds unmanned aerial vehicles for both NASA and the military, which is to say it builds drones. What does this have to do with investing in space exploration? Let me explain.
One of SpaceX’s ambitions is a constellation of satellites that will engulf the Earth in Wi-Fi. Not the data that we use every day, but Wi-Fi. You could be walking down the street or driving across the Sahara Desert; Wi-Fi would still be available to you. This is the long-term vision.
Some companies want to position traditional satellites, but it gets really expensive to launch the required number of satellites. Others proposed giant stratospheric balloons, but that idea was quickly shot down. The idea that seems to stick is ultra-light drones flying above 65,000 feet.
At that altitude, drones would technically be classified as satellites. More to the point, they are able to take flight at very little cost and, if fitted with solar-paneled wings, they could remain aloft for a long time. And here’s the best part: AeroVironment is uniquely qualified for this job.
During NASA’s “ERAST” program, it built a solar-powered plane that stayed up for an extended period of time. Later, it built one which flew at 100,000 feet. Add that to the company’s close relationships to the Pentagon, and you’ve got a company that’s in the right place at the right time.
This Wi-Fi-via-satellite idea is really taking off (if you’ll pardon the pun). Even industry outsiders like Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG) are interested in making it happen, so we could see AVAV stock start a bullish rally if it partners with one of the companies working on this effort.
Chart courtesy of StockCharts.com
Conclusion: Should You Invest in Space Tech Companies?
Investing in space exploration seems more complex than it actually is. It’s hard to wrap your mind around a business that sends its products off this planet, but I suggest taking a step back to look at the whole picture.
The best space industry stocks are providing a real service. Someone has to put satellites in space, particularly as more and more data is bounced across the globe. It no longer makes sense for governments to perform that task so, obviously, companies will take over.
We have a chance at investing in space stocks, right at the outset of this “aerospace revolution.” It’s a rare opportunity that could be gone as soon as the logic clicks for a critical mass of investors. These chances don’t come by every day.