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Investing in the Space Industry with “Space Stocks”

The sun that warms our earth is a star, much like those that sprinkle the sky at night when you look up in an area where there is no light pollution. As you’re looking up at the sky, here’s a fun question to ask someone. How many stars are there in our galaxy (the Milky Way)? You might get answers like 100,000 or 1 million or 10 million. The number is actually between 200-400 billion stars in our galaxy alone. Now here’s where things get crazy. Ask them a second question which is, how many galaxies are there in the known universe? You might get similar guesses as before, but the answer is nothing short of mind blowing. According to an announcement by NASA on October 13, 2016, the estimate for the number of galaxies in our universe is somewhere around the 2 trillion mark. In much more talked about news that same day, Kim Kardashian returned to social media and deleted some of her followers. No wonder the aliens won’t talk to us.

The truth is that once we master space travel, something that is now increasingly likely with the emergence of artificial intelligence and synthetic biology, there are going to be lots of resources we can exploit. Given that our own sun is bound to destroy earth eventually, space travel should be a pretty high priority. As “socially responsible investors“, shouldn’t we be putting some money towards this cause?

We’ve talked quite a bit about startups that are working on everything from space mining to reusable rockets. For your average retail investor though, it’s impossible to get exposure to these exciting space startups. So what about publicly traded stocks that give you exposure to space-related themes? You could look at stocks like Lockheed Martin which has a Space Systems division, but then you realize that they also build all those death machines that we use to bomb brown people with. In fact, the same holds true for the majority of the top aeronautics companies in the world:

Source: Aviation Week

When we talk about getting exposure to the “space theme”, we need to be a bit more specific about what we’re talking about. Intuitively, we’d like to find “picks-and-shovels” plays which stand to benefit from all the money pouring into the space industry. Any companies that are involved in building, deploying, or maintaining satellites would be a good start, especially considering emerging technologies like big data from space imaging and global internet access for everyone. As it turns out, that’s where the experts think we should be placing our bets. An article on CNBC last month talks about what the pundits over at Morgan Stanley think about investing in the trillion dollar NewSpace industry. Check it out:

While on the surface this seems to make sense, the list of stocks they suggest for exposure isn’t what we are expecting. Is Apple a good way to invest in space? Apparently so, alongside the world’s biggest distraction platform, Facebook, and other tech companies like Amazon and Microsoft. Sure, Bezos is into launching rockets, but saying Amazon is a space play is along the same lines as saying that you can invest in every disruptive technology out there by buying shares in Google (which made their list as well). So let’s look at their full list of 20 “space stocks”:

If we remove the first 5 technology companies, we’re left with 15 stocks. Then, let’s remove 5 of the top-20 aerospace companies which are primarily focused on defense or building commercial aircraft (Boeing, Northrop Grumman, Lockheed Martin, United Technologies, Honeywell). Now we’re left with 10 stocks. Let’s remove the two chip-making companies (Analog Devices and Qualcomm) and also the three random software companies they decided to throw in for reasons unknown (Adobe, Intuit, Shopify). That leaves us with 5 companies left. Let’s lose the insurance company (XL Group) and the hosting provider (GoDaddy) and we’re down to 3 stocks. We’ve given you many reasons to invest in Softbank, and space wasn’t one of them. If we remove Softbank, we’re left with two companies:

  • SES (EPA:SESG) – Company that owns and operates satellites
  • Inmarsat (LON:ISAT)- Operates a global satellite network

Now that’s more like it.

So out of Morgan Stanley’s list of “Space 20” stocks, it would appear that only two of them actually offer the kind of “picks-and-shovels” exposure we’re looking for. Of course you’ll need to open an account with Interactive Brokers to trade either of these companies on foreign exchanges, which begs the question. Are these the only two companies that focus primarily on satellites? Not hardly. A cursory look by one of our overworked MBAs shows a company that should have absolutely made this list, Maxar Technologies (NYSE:MAXR), which was formerly known as MacDonald, Dettwiler and Associates Ltd. (MDA) before a recent name change. In addition to trading on the NYSE, Maxar also trades on the Toronto Stock Exchange (TSE:MAXR). They’ve recently closed a big acquisition with the purchase of DigitalGlobe, so they’re now structured like a holding company. Here’s a brief description of the company from their recent investor presentation (prior to the purchase of DigitalGlobe):

That’s just one part of the company as it exists today. On October 5th of 2017, they completed the acquisition of “the global leader in earth imaging and geospatial solutions”, a company called DigitalGlobe, which added another $777 million in annual revenues to Maxar. It appears that they’re well ahead of the competition in terms of capabilities:

We’re certainly not inclined to believe everything in investor presentations, but these are some pretty compelling numbers, especially when you consider just how many players there are. In past articles, we found at least 8 Satellite Data Startups Doing Geospatial Analysis and then found 10 SmallSat Startups Launching Fleets into Outer Space. You can bet that Maxar is keeping tabs on every single one of them, and they’re even doing work with Richard Branson’s startup which we covered in an article titled Branson’s OneWeb: Cheap Satellite Internet Anywhere. In 2016, Maxar signed a contract with OneWeb to develop and manufacture 3,600 communication antenna subsystems for integration on 900 satellites for the OneWeb LEO constellation. Digging into their latest annual report shows that they’re also doing work with Boeing, Airbus, and even NASA. It’s pretty safe to say that this is a company that should be included in any portfolio of “space stocks”.

So why didn’t Maxar make the Morgan Stanley list? Who knows, but what has become apparent is that we need to do a whole lot more research around all the stocks out there that might offer picks and shovels exposure to the “space industry” because it’s pretty clear that “a team of the firm’s analysts” at Morgan Stanley haven’t been able to do a very good job of identifying them so far. We’re going to tuck into some more “space stocks” we’ve come across in a future article so stay tuned. We’re also going to do a deep dive into the newly formed Maxar Technologies once the dust settles sine it appears to be a real leader in this space.

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