Space moonshots, pure plays and defense picks to watch

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Rocket flies through the clouds

Rocket flies through the clouds

Alexyz3d

The space industry will be in the headlines this week with NASA’s Artemis I uncrewed Orion spacecraft’s return flyby of the Moon scheduled for December 5 and a high-profile return to Earth set for December 11. Meanwhile SpaceX (SPACE) continues to prep its Starship Mars rocket for what will be a head-turning orbital test flight. During a recent static fire test, SpaceX ignited multiple Raptor engines on Booster 7, a prototype of Starship’s first-stage Super Heavy rocket.

For investors, space stocks have had a rough year due to global macroeconomic headwinds and capital drying up due to the spike in interest rates rise. Share prices have crumbled for space-related names, particularly for the SPAC class of 2021-2022.

Looking ahead to 2023, Bank of America thinks there are still attractive opportunities available for investors wanting to invest in high-growth space end markets. In particular, industry experts have pointed to the extraction of space resources, in-space manufacturing, commercial space stations, and space tourism as some of the areas the space industry could boom.

Beyond the moonshots, the firm also continues to see upside to federal spending for space and defense capabilities. “We believe this robust growth profile will continue to drive the expansion of the space industry,” previewed analyst Ronald Epstein.

Northrop Grumman (NOC) is singled out for having a best-in-class space business among the defense primes. The company is forecast to generate space system revenue at a a 7.4% CAGR for 2021 to 2025. Notably, NOC’s space business continues to benefit from well supported classified programs, Launch & Strategic missile ramping on development programs, Next-Gen Interceptor, GBSD (Ground Based Strategic Deterrent), SDA (Space Development Agency) initiatives, and Commercial Resupply Service programs.

Rocket Lab (RKLB) is called the best overall pick for a space pure play. “While most space de-SPACs have tried to build out their exposure beyond launch services, RKLB has been one of the few names to succeed in this strategy, having acquired Sinclair, ASI, PSC, and SolAero,” updated BofA. Crucially, the firm does not see any near-term liquidity concerns for RKLB given its initial sizable capital raise, which is said the leave the door open for future M&A and capex. Of note, Epstein and team said RKLB also possesses the most mature and consistent dedicated small launcher, being the second most launched rocket model in the U.S.

Terran Orbital (LLAP) is noted to stand out with a robust backlog of defense satellites. LLAP is seen as a beneficiary of defense demand for capabilities in the space domain.

Other space stocks of interest include Virgin Galactic (SPCE) in space travel, Arqit (ARQQ) and Velo3D (VLD) in space technology, Maxar Technologies (MAXR) in space satellites – as well as Astra Space (ASTR), Virgin Orbit (VORB), Boeing (BA), Lockheed Martin (LMT), in space launch/infrastructure.

Two catch-all investments for the space sector are the Procure Space ETF (UFO) and ARK Space Exploration & Innovation ETF (BATS:ARKX). Compare the two space-focused ETFs side by side.

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