Five Space Investments to Buy as Conflicts Extend Beyond the Sky

Five space investments to buy as conflicts between nations extend well beyond the sky.

An estimated $18 billion has been invested in companies involved in the space industry during the last decade, with U.S. companies receiving the bulk of that funding. A key part of the spending has gone to public companies that are seeking to participate in projects such as the James Webb Space Telescope that once had been the sole domain of the National Aeronautics and Space Administration (NASA).

The in-orbit James Webb Telescope reveals emerging stars in the Carina Nebula that previously were obscured, as well as images of “cosmic cliffs” that shed new light on how stars are formed. The advanced telescope features a Near-Infrared Camera (NIRCam), developed with the help of the Advanced Technology Center of Lockheed Martin (NYSE: LMT), to offer sharp resolution for hundreds of previously hidden stars, as well as many galaxies.

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Fund Featured as One of the Five Space Investments to Buy as Conflicts Extend Well Beyond the Sky

Investors who want exposure to space stocks can purchase an exchange-traded fund (ETF), said Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter. Carlson told me his preferred choice is SPDR Aerospace and Defense (XAR).

Bob Carlson, who leads Retirement Watch, meets with Paul Dykewicz.

SPDR Aerospace and Defense owns 34 stocks and has 36% of the fund in its 10 largest positions. Those holdings include Boeing (NYSE: BA), Virgin Galactic (NYSE: SPCE) and Huntington Ingalls (NYSE: HII).

The fund seeks to track the S&P Aerospace and Defense using a sampling strategy. The index is broader than just defense stocks, so it gives investors to space and satellite companies, too.

Chart courtesy of www.stockinvestor.com

Connell Chooses One of Five Space Investments to Buy as Conflicts Extend Well Beyond the Sky

The company also is working through the kinds of supply chain issues that are affecting many businesses, but it still has a backlog of $980 million. As a result, there is less uncertainty about demand for KTOS’ products, compared to other companies and industries, Connell counseled.

Kratos Defense & Security Solutions recently made a $80 million acquisition of the engineering division of Southern Research. In addition, analysts forecast that KTOS has the potential to exceed current estimates for both revenue and profits, she added.

Investors who are familiar with technology-focused investor leader Cathy Woods should note that she has kept her position in KTOS for ARK Innovation ETF (ARKK). Even though KTOS is down 28% so far this year, its 12-18 month upside could more than compensate for the loss, Connell surmised.

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Rocket Lab Launches into Five Space Investments to Buy as Conflicts Extend Well Beyond the Sky

Rocket Lab USA, Inc., (Nasdaq: RKLB), a launch and space systems company, recently announced that its next two launches will be carried out for the U.S. government’s National Reconnaissance Office (NRO). Taking off from Rocket Lab Launch Complex 1 on two Electron rockets, the company is scheduled to deploy satellites to space for the NRO within just 10 days of each other.

BofA Global Research has assigned a price objective or $12 to the stock, based on a long-term discounted cash flow (DCF) for different revenue and cash-generation scenarios between now and 2035. The DCF factors in a 13% discount rate and assigns 33% probability to the Base case, 33% probability to the Bull case and a 33% probability to the Bear case.

Ron Epstein, a space and defense analyst with BofA Global Research, said he uses a lower discount rate relative to peers due to the company’s more mature launch capabilities. He noted that the equal weighting fairly reflects current investor risk appetite, momentum for new technology space stocks and the perceived viability of Rocket Lab’s business model compared to its peers.

Ronald Epstein, BofA aerospace and defense analyst. Image courtesy of Bank of America.

Potential risks to BofA’s price target include persistent COVID-19 restrictions in New Zealand, production delays, the constellation launch market staying captive to certain providers, setbacks to the economic recovery, an inability to achieve mergers and acquisitions (M&A) synergies and setbacks to Neutron vehicle development.

On the other hand, outperformance could come from better-than-expected cost cutting and margin expansion, well integrated M&A activity, market share gains in satellite components and services, higher reutilization levels and better-than-expected commercialization of the Neutron launch vehicle, Epstein wrote.

Rocket Lab USA, Inc. recently deployed a pathfinding satellite for NASA, setting it on a course to the Moon.  The deployment marks the successful completion of Rocket Lab’s first deep space mission, paving the way for the autonomous Positioning System Technology Operations and Navigation Experiment (CAPSTONE) expected to be the first spacecraft to test the Near Rectilinear Halo Orbit (NRHO) around the Moon. That orbit is intended for NASA’s Gateway, a Moon-orbiting outpost that will provide essential support for long-term astronaut lunar missions for the Artemis program.

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Five Space Investments to Buy as Conflicts Extend Well Beyond the Sky Include Terran Orbital Corporation

Terran Orbital Corp. (NYSE: LLAP), a Boca Raton, Florida-based satellite manufacturer, announced the successful completion of CAPSTONE’s second TCM burn on July 12. Smaller than the first TCM burn, the second one demonstrated the spacecraft’s capability to perform precise maneuvers needed to operate in a Near Rectilinear Halo Orbit (NRHO). The maneuver further cleaned up launch injection dispersions and execution dispersions that occurred during the first burn, company officials said.

The company begin trading on the New York Stock Exchange in late March under the ticker symbol LLAP, based on the words Live Long and Prosper, the Vulcan greeting from the Star Trek television series. A merger with a special purpose acquisition company (SPAC), Tailwind Two Acquisition Corp., and Terran Orbital was completed March 25, following a shareholder vote.

Terran Orbital announced gross proceeds of approximately $255.4 million from the SPAC. There also was a concurrent private investment in public equity (PIPE) round that included equity and debt.

Terran Orbital Corporation is regarded by BofA as a “buy,” based on a long-term unlevered DCF using Bull, Base and Bear cases, when assigning an equal weighting to each scenario. The company’s revenue and margin growth assumptions are primarily driven by differences within Earth Observation Solutions, where revenues are mostly dependent on the number of satellites in orbit. As a result, BofA calculated a price objective of $9 per share.

Risks include the change LLAP doesn’t build out its PredaSAR constellation or if the demand for its imagery fails to come to fruition. Another risk is any potential damage to its relationship with Lockheed Martin. However, BofA wrote that if the company is able to grow faster than expected and the uptake for LLAP exceeds projections, the company may outperform its price target.

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One of Five Space Investments to Buy Is Hypersonic-Capable Spirit AeroSystems

Spirit AeroSystems (NYSE: SPR), headquartered in Wichita, Kansas, is one of the world’s largest manufacturers of aerostructures for commercial airplanes, defense platforms and business/regional jets. With expertise in aluminum and advanced composite manufacturing solutions, the company’s core products include fuselages, integrated wings and wing components, pylons, and nacelles.

Aside from supporting aftermarket work for commercial and business/regional jets, the company has taken a key role in the defense industry’s research and technology to address the most difficult technical challenges in the pursuit of hypersonic flight. The exceptional speed of such flight is above Mach 5, or five times the speed of sound. Mach 6 is six times the speed of sound, or 820 mph, equaling 2 km per second, or 7,200 km per hour.

However, Russia is ahead of the United States in developing hypersonic weapons and its defense officials have spoken about having the technology available to use against Ukraine within just months. China also is seeking to become a world leader in hypersonic technology, leaving the United States in catchup mode.

Spirit AeroSystems’ officials said America’s top technical priority right now is a low risk and wholistic approach to deploy operational hypersonic weapons at scale. A merger between Spirit AeroSystems and Fiber Materials, Inc. (FMI) occurred on Jan. 10, when Spirit closed its purchase of the other business. FMI’s products currently are on the Trident D5, Standard Missile, PAC 3, THAAD and NASA programs such as Stardust, Mars Curiosity, Orion and Mars 2020.

One of the Five Space Investments to Buy Needs to Advance Its Hypersonic Thrust

The combined company’s joint capabilities provide materials, design and production to produce thermal protection systems, a key enabling technology for hypersonic flight. FMI, based in Biddeford, Maine, supplies high-temperature materials, backed by technical support and data for material characterization and predictability, while Spirit AeroSystems adds modeling and simulations to the process, along with its record of commercializing critical flight structures.

New capability provided by Spirit AeroSystems is aimed at positioning America’s hypersonic programs to meet government demands and timelines. With more than nine decades of experience, the company offers supply chain management, as well as an understanding of the costs and other requirements, its officials said.

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Supply Chain Challenges and COVID-19 Cases Continue to Weigh on Investments

Shanghai’s Covid-19 cases appear to be leveling off following a recent spike, but some residents have been encouraged to stockpile food and medicines as the fear of returning to lockdown remains. Any further lockdowns could gum up supply chains again, but Chinese leaders likely will try to avoid anything draconian due to the potentially big economic risk.

U.S. COVID-19 deaths totaled 1,021,853, as of July 13, according to Johns Hopkins University. Cases in the United States climbed to 88,947,827. America still holds the dreaded distinction as the country with the largest number of COVID-19 deaths and cases.

COVID-19 deaths worldwide totaled 6,355,960 as of July 13, according to Johns Hopkins. Global COVID-19 cases reached 557,819,623 on July 13.

Roughly 78.4% of the U.S. population, or 260,327,743, have obtained at least one dose of a COVID-19 vaccine, as of July 12, the CDC reported. Fully vaccinated people total 222,455,652, or 67%, of America’s population, according to the CDC. The United States also has given at least one COVID-19 booster vaccine to 106.6 million people.

The five space investments to buy give investors an opportunity to let the returns of their portfolios take flight with the new launchers and satellites that are heading into orbit for a host of purposes ranging from exploration to defense capabilities. With the highest inflation in 41 years, a potential Fed rate hike of 0.75% possible this month and other rate increases to follow, the prospects of the five space investments to buy are promising, despite supply chain strains and Russia’s unrelenting invasion of Ukraine.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.