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Space stocks and ETFs to watch

Space shuttle overlooking Earth

Space stocks are skyrocketing in popularity due to new technology, exploration projects and even tourist expeditions in the future. We count down some top space stocks and ETFs to watch right now based on revenue, growth potential and recent developments.

 

An overview of the space industry

The space industry is currently valued at around $350bn, and Morgan Stanley forecasts that this sector will increase to generate more than $1trn by 2040. Space technology is used in everyday life and non-space companies can even use these developments for their own related services and products. In fact, the United Nations Office for Outer Space Affairs (UNOOSA) considers the space economy to be crucial for socio-economic development and therefore, it is promoting better cooperation on a global level.

Pure play space companies usually focus on one specific industry or sector and these tend to receive over 50% of their revenue from space-related services. In general, space companies can be involved in any of the following:

  • Launching, servicing or operating platforms such as satellite communications and space vehicles.

  • Developing technologies including artificial intelligence (AI), robotics and 3D printing.

  • Benefitting from aerospace activities in their business field, including progression in GPS, internet and aviation.

  • Providing space tourism services to the general public.

In particular, interest in space tourism is on the rise, with companies such as Richard Branson’s Virgin Galactic and Elon Musk’s SpaceX promising flights as early as 2021. Even Amazon founder Jeff Bezos founded his own space tourism company, Blue Origin, in 2000, with the first public space launch planned for July 2021. If three of the most successful entrepreneurs in the world are getting onboard with space exploration, then this may be a promising industry to watch.

 

Space stocks to watch

Virgin Galactic (SPCE)

Virgin Galactic debuted on the stock market in 2019 after a SPAC merger. Richard Branson founded the company in 2004 and it focuses primarily on developing commercial spacecraft that aims to allow suborbital spaceflights to tourists. At an estimated price of $250,000 for a 90-minute flight, it will target wealthy celebrities and high-net-worth individuals. These excursions are expected to be ready in early 2022.

Virgin Galactic experienced a successful 2020, where its share price shot up over 30% between February 2020 and February 2021. This could have been caused by NASA awarding the company a contract for flight and integration services, as well as its test flight programme returning to schedule towards the end of the year. In June 2020, it signed a contractual agreement with NASA to allow commercial participation of private spaceflights to the International Space Station (ISS), which signals exciting developments in the upcoming months.

 

Boeing (BA)

Boeing’s space developments date back to 1969, when it built the first stage of the Saturn V rocket that propelled Apollo 11 astronauts to the moon. It is the world’s largest aerospace company and a leading manufacturer of commercial jetliners, defense, space and security systems. Boeing has worked with NASA on a number of projects and is a prime contractor, helping to manage the ISS.

Recent projects Boeing is working on that have captured investor attention include building the most powerful rocket yet, known as the Space Launch System. This will allow astronauts and probes into a deep level of space, although the project has come with complications, including cost overruns and delays. The company continues to operate the Starliner spacecraft to carry NASA astronauts to and from the ISS, which is due to have more test flights in mid-2021.

 

Iridium CommunicationS (IRDM)

This company’s flagship is the Iridium satellite constellation, which is a system of 66 crosslinked satellites that are used for voice and data communication on a global level. Its products range from hand-held satellite phones to broadband to other types of transceiver units, which are used by over 1m mariners, pilots, humanitarians, first responders and governments across the world.

Analysts are predicting a 14% growth rate over the next five years for the company. This can be attributed to a number of things, including the lack of competition for such niche products that Iridium specialises in, and the fact that the company has already its constellation of 75 satellites in orbit. This means that it may be easier for Iridium to generate strong free cash flows without the pressure of focusing on new products and investments.

 

Trimble (TRMB)

Trimble has gained investor attention in 2021 after being included in ARK’s Space ETF as a top holding. Trimble is a leading company in the GPS market, providing hardware and software solutions to millions of customers across the world by integrating location-based technologies such as GPS and global navigation satellite systems (GNSS). It also provides data collection platforms that simplify geospatial information, making space exploration a particularly relevant sector for the company.

Trimble tends to target companies in industries that typically see less emphasis on technology, such as construction, agriculture and transportation. The stock has witnessed an increasing gross margin over recent years, which drove solid growth in its free cash flow, despite suffering slightly from the Covid-19 crisis.

 

Aerojet Rocketdyne (AJRD)

The US rocket and missile manufacturer was founded in 2013 and is heavily involved with the US Air Force. Aerojet Rocketdyne’s engines were used in the Apollo 11 mission, as well as the Space Shuttle until it stopped operations. The engines that featured in the Space Shuttle will also be used to power NASA’s new Space Launch System.

As of 2021, Aerojet has no debt on its balance sheet and the company has a strong free cash flow, signalling a promising future for the space stock. A merger between Aerojet Rocketdyne and Lockheed Martin, another popular aerospace and defence company, is currently under review, which could help to push the stock higher if a confirmation is made.

 

Maxar (MDA)

Maxar is a smaller space stock in comparison with other giants on this list. The geospatial company builds communication and Earth observation satellites to provide access to satellite imagery and map data. It also constructs robotic systems for use in space.

Although Maxar is a relatively small-cap stock, it is on track to build the first components of NASA’s Lunar Gateway space station and it will also supply the station with electrical power, as it is based on Maxar’s 1300 series satellite bus. This could further spark investor interest as the company managed to beat other larger competitors to the task.

 

Lockheed Martin (LMT)

The world’s largest aerospace and defense contractor by revenue, Lockheed Martin has been at the front of many high-profile projects. The company helped to build the solid propellant launch escape motor and pitch control motor for the Apollo 11 spacecraft, as well as providing modules for NASA’s Mars Perseverance Rover, which was launched in 2020.

Lockheed announced its intentions to purchase rocket manufacturer Aerojet Rocketdyne in Spring 2021, a move that may improve its capabilities to build space and military weapons. Lockheed is Aerojet’s biggest customer right now, generating around 43% of Aerojet’s revenue, either through direct sales or joint ventures with Boeing. As the US government helps to generate around 70% of its annual revenue, Lockheed Martin tends to thrive on increasing global military spending and the US defense budget growth, so look out for economic and defense budget announcements if you’re interest in Lockheed stock.

 

Northrop Grumman (NOC)

Northrop is one of the world's largest weapons manufacturers and military technology providers by annual revenue and number of employees. The company bought Orbital ATK, a merger between Orbital Sciences and Alliant Techsystems, in 2018, to build and deliver space, defense and aviation-related systems as a prime contractor around the world. The company builds satellites, military vessels, electronic sensors and aerial vehicles.

In collaboration with NASA, Northrop is working on building the James Webb Space Telescope, which is due to launch in November 2021, as well as supporting the Artemis moon missions by creating motors for the Orion human spaceflight spacecraft. The company was recently awarded money for upcoming projects, including $187m to design the crew cabin for the Lunar Gateway and $84m to provide rocket motors for the Mars Ascent Vehicle.

 

What is the potential for space stocks in the future?

More and more businesses are incorporating technologies produced by aerospace companies into their own work. This means that space-related companies will most likely increase in value, as we further our knowledge of how the interstellar world works. Two potential stocks for the future to watch are the following:

SpaceX/Starlink: Elon Musk’s space division is not yet a publicly traded company, despite making various breakthroughs and launching multiple space missions. It is not expected to have an IPO until at least 2024, as this is when analysts predict that Starlink will start achieving a positive cash flow. Musk has signalled that he will give long-term Tesla shareholders preference when it comes to the Starlink IPO. Therefore, growing anticipation of a spin off IPO of the satellite internet company could support Tesla’s share price also.

Blue Origin: Jeff Bezos’ company is not yet available to trade and is privately funded. However, following the launch of New Shepard in July 2021, the e-commerce mogul may start to ponder floating the company’s shares, if the journey is successful.

 

Space ETFs

Ark Space Exploration & Innovation ETF

This actively-managed exchange-traded fund tracks the performance of companies that are involved in the development of space-related products and services. It focuses on long-term growth of capital. The fund’s definition for Space Exploration is leading, enabling and benefitting technologically enabled products and/or services that occur beyond the surface of the Earth. Top holdings include Trimble, Iridium and Amazon, each of which belong within one of the four targeted categories: Orbital Aerospace Companies, Suborbital Aerospace Companies, Enabling Technologies Companies and Aerospace Beneficiary Companies. It has an expense ratio of 0.49%.

 

iShares US Aerospace & Defense ETF

This passively-managed ETF seeks to track the investment results of the Dow Jones US Select Aerospace & Defense Index, which is made up of US-based equities within the aerospace and defense sectors. This includes manufacturers, assemblers and distributors of commercial and military aircraft, other defense equipment and aircraft parts. The fund has an expense ratio of 0.42% and its top holdings include Boeing, Lockheed Martin and Northrop Grumman.


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