Out-of-This-World Gains: 3 Space Stocks for Your Portfolio - Tokenist
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
Much like exposure to the biotech sector, space stocks are fraught with risk. Although the Earth’s orbit is peppered with ~7,500 active satellites, the launch of each rocket can fail, on top of its substantial cost.
Nonetheless, the space industry’s cost-effectiveness has drastically increased over the decade, going from $65k for heavy launches to just $1.5k per kg of payload by 2022. Moreover, micro-satellite launches into lower Earth orbit (LEO) to create commercial constellation coverages have become common, evidenced by Amazon’s Project Kuiper and SpaceX’s Starlink.
According to the World Economic Forum (WEF), in collaboration with McKinsey & Company, the space economy is forecasted to grow from $630 billion in 2023 to $1.8 trillion by 2035, giving the sector a CAGR of 9%.
For retail investors looking for exposure to this nascent sector, these space stocks stand out.
Specializing in small LEO satellite launches on Electron rockets capable of up to 300 kg payload, Rocket Lab executed 51 deployments. Having placed in orbit over 190 satellites, the company had only four failures.
The key to Rocket Lab’s success has been this minimalistic approach, steadily growing from that accrued experience to more ambitious Neutron mid-capacity rockets. These will have up to 13,000 kg payload capacity, and their Archimedes engine has already been successfully tested for the upcoming 2025 rollout.
With a streamlined component manufacturing due to 3D-printing and full-stack launch service, Rocket Lab aims to tackle SpaceX’s market hold because “the medium launch monopoly needs breaking”, according to CEO Peter Beck. With a combined revenue from government and commercial contracts, the company’s Q2 2024 earrings showed a $106 million record, representing 71% year-over-year growth.
Of that total, only $29.4 million was generated from actual Launch Services while the rest came from the Space Systems division, encompassing software and hardware needed. A part of that full-stack service was Rocket Lab’s acquisition of SolAero Holdings in early 2022 for its radiation-resistant solar cells.
Although worth $80 million, Rocket Lab managed to offset $23.9 million of the cost courtesy of the CHIPS Act. Year-to-date, RKLB stock is up 18%, with a significant 48% boost in the last three months.
Presently at $6.27 per share, RKLB shares are over their 52-week average of $4.67. According to Nasdaq’s forecasting, the average RKLB price target is $7.48, which would be just over the 52-week high point of $7.36 per share. As a well-known space stock alternative to SpaceX, this makes RKLB less attractive in the short term, but the company ticks all the boxes for long-term space exposure.
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Unlike Rocket Lab which covers the entire spectrum of satellite launches, Intuitive Machines is targeting the Moon without having launched commercial satellites. In February 2024, the company launched its first lunar mission IM-1, as a part of NASA’s efforts to revisit the Moon since the Apollo Program.
Intuitive Machines’s Lunar Payload Delivery Services (LPDS) is effectively NASA’s outsourcing approach. In turn, this means that the company is tax payer funded, removing some of the risk inherent with the industry. Case in point, NASA awarded Intuitive Machines $30 million as the first phase to map NASA’s $4.6 billion Lunar Terrain Vehicle (LTV) program.
In collaboration with Boeing, AVL, Northrop Grumman and Michelin, Intuitive Machine is building its Moon RACER (Reusable Autonomous Crewed Exploration Rover) to robustly create a Moon foothold. In February, the company successfully landed its solar-powered Odysseus near the Moon’s south pole to explore frozen water potential, delivered by SpaceX’s Falcon 9 rocket.
Considering the company’s laser focus on the Moon rather than the general deployment of satellites for immediate practical use, this makes Intuitive Machines less enticing than Rocket Lab. However, it is also clear the company is deeply embedded in the aerospace industrial complex, courtesy of taxpayers.
By 2027, Intuitive Machines is set to deliver six scientific instruments on the Moon’s South Pole, courtesy of NASA’s $116.9 million funding. Still a penny stock, LUNR is priced at $4.97 vs its 52-week average of $4.24. Highly volatile, LUNR’s 52-week price ceiling was $13.25.
Nasdaq’s forecasting indicates nearly double gains from the present price, placing the average LUNR price target at $9.33 per share, with even the low forecast of $8 significantly above the current $4.97 price level.
Richard Branson’s take on space tourism has been fraught with problems. Although founded in 2004, only recently in June 2023 did the company carry their first paying customers to the edge of space.
Virgin Galactic’s VMS Eve spacecraft launches like a regular airplane. At a certain height, the VMS Unity that is attached to Eve is released to then propel the passengers up to 100 km above the Earth’s surface, which is considered the edge of space.
Although the VSS Unity flight was successful, it was also the last flight using this two-fuselage approach. Virgin Galactic’s space roadmap is centered on the Delta spacecraft, developed in collaboration with Qarbon Aerospace and Bell Flight, a subsidiary of Textron (NASDAQ: TXT).
The shift to Delta Class is another delay in space tourism, as the first commercial flights are not expected until 2026. Nonetheless, as a more robust craft with 8-per-month flight capability, Virgin Galactic could stake space tourism, giving the company a substantial first mover advantage.
As of Q2 2024 earnings delivered in August, Virgin Galactic’s net cash depleted from $125 million in the year-ago quarter to $79 million. Much of the future funding will be on the back of the company’s public trading status, having generated $64 million in gross profit from the issuance of $3.7 million shares in the quarter.
Presently priced at $6.69, SPCE stock is down 86% year-to-date and near its 52-week bottom of $5.26 per share. Against the 52-week average of $27.58, the average SPCE price target is $12.25, promising nearly double the gains from the current bottom.
Do you think governments should allocate more money into space infrastructure? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.