From the first moon landings, space exploration has gripped the human imagination. It’s no coincidence that the world’s richest men, Tesla’s Elon Musk and Amazon’s Jeff Bezos, are ploughing their personal fortunes into the next space race. One lucky space tourist has just paid $28 million to join Bezos on his first trip to space on July 20. While that’s out of most people’s budgets, can investors still make money from travelling (virtually) with the “rocket billionaires” to the final frontier?
How to Invest in the Space Race
This a broad investment area but not all companies are listed, meaning that there’s a limited opportunity set for investors at the moment as the sector develops. Space tourism is currently attracting a lot of hype, but Elon Musk’s SpaceX and Bezos’s Blue Origin are as yet unlisted on the stock market, leaving Richard Branson’s Virgin Galactic (SPCE) as the only option available to public investors.
Perhaps you are more interested in the potential for satellite technology, which while less glamorous than space tourism, has a longer track record and more listed companies.There are even ways to play the trend through media companies that use satellites, such as 3-star radio broadcaster Sirius XM (SIRI) and 3-star rated Dish Network (DISH).
My colleague Vikram Barhat has recently profiled three large US stocks to benefit from increased spending in aerospace, including Lockheed Martin (LMT), Boeing (BA) and Northrop Grumman (NOC), all of which have contracts with Nasa. Wide-moat Northrop Grumman has just won a deal, for example, to provide rocket motors to Nasa’s journey to Mars in 2026.
Here, we’ve hand-picked three stocks to cover different investment angles, including space tourism, satellites and aerospace technology – and looked at some alternatives:
Airbus (AIR)
Star Rating: 3
Economic Moat: Wide
Share Price: €113
Fair Value: €127
Europe’s Airbus is best known for making commercial aircraft like the double-decker passenger plane, the A380. But it is also focused on space, working closely with the European Space Agency (ESA) and launching its first earth observation satellite 35 years ago. Airbus has teamed up with France's Safran (SAF) to create joint venture ArianeGroup. The Ariane 6 space rocket, which can launch two commercial satellites into space at the same time, is expected to launch in 2022. Airbus also made satellites for OneWeb, but India's Bharti and the UK Government have now taken over the wider OneWeb project.
Morningstar analyst Burkett Huey says the coronavirus pandemic has impacted Airbus’s commercial division, but its defence and space arm has been relatively resilient. The cost of development, manufacturing and researching this type of technologies make it hard for new entrants to enter the industry, sustaining the position of incumbents like Airbus and fellow space race stock Boeing.
Virgin Galactic (SPCE)
Star Rating: Not rated
Economic Moat: Not rated
Share Price: $35
Fair Value: Not rated
Not yet rated by Morningstar analysts, Virgin Galactic in 2019 became the first space tourism company to list on the New York Stock Exchange and is now worth nearly $9 billion. Founded in 2004, the company initially sold tickets for around $250,000 to people wishing to take a “suborbital” space flight to where the earth’s atmosphere meets outer space (around 60 miles above sea level). Ticket sales are re-opening this year and Virgin Galactic says the price is likely to be above that offered to early adopters.
The company’s shares were in focus last year as a “Reddit stock” and they hit a record high of $40 per share before dropping back to earth. Rival SpaceX has (literally) set its sights higher and plans to offer space tourists the opportunity to go to the International Space Station, which at around 250 miles above sea level, is four times higher than Virgin Galactic’s flights. Morningstar-owned Pitchbook says that SpaceX’s valuation is much loftier than Virgin Galactic’s at around $74 billion, based on the latest funding round in April 2021. Virgin Galactic is also considering floating its Virgin Orbit satellite business via a special purpose acquisition vehicle (SPAC) – my collegue Ruth Saldanha explains how these sometime controversial schemes work.
Garmin (GRMN)
Star Rating: 1
Economic Moat: Narrow
Share Price: $142
Fair Value: $98
If you’ve every wondered how your smartphone knows exactly where you are in the world, the global positioning system (GPS) is the answer. GPS, which was developed by the US government, allows your phone to ping an available satellite and the signal rebounds back to earth. This is a technology that we now take for granted, but which has taken decades to bring to its current state. Smartwatch and satnav maker Garmin (GRMN) was one of the first companies to commercialise the technology, developed initially for military use.
The next frontier in satellite technology is so-called “geospatial imaging” which allows users to see moving objects like vehicles, boats and even people in real-time. The company's shares have soared in recent years and are now trading above their fair value, according to Morningstar analysts, who assign Garmin a 1-star rating. Still, Garmin has a narrow economic moat because of its aviation division, which caters for clients involved in the space race. "We believe Garmin’s aviation segment is a moaty business, given the mission-critical functions the company’s avionics products serve in small to midsize jets as well as helicopters," says Julie Bhusal Sharma.
Note: Share price data correct at June 16, 2021
