Three Space Investments to Purchase for Income and Growth as War Rages

Three space investments to purchase for income and growth should benefit as war rages in the Ukraine.

An estimated $18 billion has been invested in companies involved in the space and satellite industries during the last decade, with U.S. companies receiving the bulk of that largesse. Many public companies have been the recipients of that funding for an array of projects that include the James Webb Space Telescope led by 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 Three Space Investments to Purchase as Conflicts Extend Well Beyond the Sky

Investors who want exposure to space stocks can purchase a specialized exchange-traded fund (ETF), said Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter. Carlson called SPDR Aerospace and Defense (XAR) the fund to buy.

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 defense stocks, encompassing space and satellite companies, too.

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Garmin Gains Slot Among Three Space Investments to Purchase for Income and Growth

Garmin (NASDAQ: GRMN), of Olathe, Kansas, provides smart aviation solutions for local, state and federal government agencies, as well as defense organizations. The company offers commercial off-the-shelf (COTS) solutions or others specialized to a mission, using knowledge and experience to enhance an aircraft’s capabilities.

Garmin helps pilots see more, know more and fly smarter with proven technologies, its officials said. The company provides an array of technology to enhance avionics for defense organizations, as well as military contractors, by offering integrated flight decks, navigation and communication systems, flight displays, weather radar and portable Global Positioning System (GPS) capabilities.

Bryan Perry, a high-income aficionado who is a veteran of Wall Street firms and the editor of the Cash Machine investment newsletter, told me he likes the stock’s potential.

Paul Dykewicz interviews Wall Street veteran Bryan Perry, who heads the Cash Machine newsletter.

Garmin May Outperform Market as One of Three Space Investments to Purchase for Income and Growth

BoA put a $137 price objective on the stock, using a relative multiple that is consistent with the average relative multiple over the last 20 years to reflect GRMN’s competitive positioning.

Topping the price target could occur if faster-than-expected growth flows from new products like smart wearables and the development of an innovative, category-making new device. Increased demand for wearables also could enhance performance beyond estimates, BofA wrote.

Risks to reaching the price target of BofA are market saturation in the medium term, after some of the stock’s end markets benefitted from strong tailwinds in recent quarters due to the COVID-19 pandemic. Industry-wide constraints of certain electrical components further could hurt results, along with foreign exchange risk and freight headwinds hurting margins.

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One of Three Space Investments to Purchase for Income Is Hypersonic-Leader 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 discussed having the technology available to use against Ukraine in 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 Three Space Investments to Purchase 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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Connell Chooses Alternative Space Investment for Income and Growth as Conflicts Extend into Space

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 Offers Another Alternative to Three Space Investments to Purchase for Income and Growth

Rocket Lab USA, Inc., (Nasdaq: RKLB), a launch and space systems company headquartered in Long Beach, California, 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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Three Space Investments to Purchase for Income and Growth Omit Terran Orbital

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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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 three space investments to purchase for income and growth offer potential returns that could 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 42 years, a potential Fed rate hike of 0.75% possible this month and other rate increases to follow, the prospects of the three space investments to purchase are promising, despite supply chain strains and Russia’s unrelenting invasion of Ukraine.