Could launch vehicle stocks rise beyond the skies as Russia stops collaborating with the U.S. government to transport astronauts to the International Space Station (ISS) and deliver supplies?
Launch vehicle companies are positioned to become beneficiaries of the U.S. government scaling back its space program since the 1980s, when it conducted all its own launches under federal supervision. Aside from the end of the U.S. government’s monopoly on launches led by the National Aeronautics and Space Administration (NASA) and other agencies, the war Russia started with Ukraine on Feb. 24 has been a “growth catalyst” for Western space companies, wrote BofA Global Research.
The decision that Russia’s leaders announced on July 26 to leave the International Space Station (ISS) program after 2024 showed them to be unreliable partners as launch providers, creating a wide opening for Western launchers to fill a deep void. The result is that the U.S. commercial space industry is gaining momentum as a major provider not only of launch capabilities but in-orbit satellite services.
Could Launch Vehicle Stocks Rise? It Would Not Be a Surprise
The invasion of Ukraine added urgency to the space race, with Russia’s leaders subsequently blocking the United States and its allies from using Soyuz rockets as launchers. American launch providers such as SpaceX, Blue Origin and Space Launch System (SLS) are answering the call to fill the gap. None of them are publicly traded stocks, but investors can find backdoor ways to invest in three companies involved in the launch business.
Mark Skousen, the head of the Forecasts & Strategies investment newsletter and a leader of the Fast Money Alert trading service that invests in both stocks and options, questioned SpaceX and Tesla (NASDAQ: TSLA) founder Elon Musk at the annual Baron Investment Conference held this year on Nov. 4. Skousen has recommended Tesla profitably in the past but now is steering clear of it due to the stock’s sky-high valuation.
Mark Skousen, a scion of Ben Franklin and leader of Five Star Trader, meets Paul Dykewicz.
When Skousen asked Musk about why investors should invest in non-dividend-paying Tesla at its much higher price-to-earnings (P/E) valuation rather than dividend-paying EV competitors, the entrepreneur told attendees at the recent Baron Funds Investment Conference in New York that he would not argue that point. Instead, Musk said he advised the investing public in the past that Tesla shares were too high, “and they ignore me and buy the stock anyway.”
Paul Dykewicz meets with CEO Ron Baron at the end of the Baron Funds conference.
Could Launch Vehicle Stocks Rise? Baron Focused Growth Fund Offers Backdoor into SpaceX
The best way for individual investors to obtain a stake in SpaceX could be to buy shares of Baron Focused Growth Fund (BFGIX), which has put 10.7% of its holdings in the Musk-led venture. A downside is that Tesla is the fund’s largest position, with 14.9%, as of Nov. 30, but the stock has been trending down.
Chart courtesy of www.stockcharts.com
Could Launch Vehicle Stocks Rise? Lockheed Martin Has a Chance
Although Blue Origin is a privately owned launcher funded by billionaire Jeffrey Bezos, Space Launch System is backed by three major U.S. aerospace companies, Boeing Co. (NYSE: BA), Northrop Grumman (NYSE: NOC) and Lockheed Martin (NYSE: LMT), that are all publicly held. None of the three public companies are pure plays on the economically cyclical launch business, but that cuts risk through diversification.
Lockheed Martin is a current recommendation of Jim Woods, a seasoned investment guru, in his Bullseye Stock Trader advisory service that recommends both stocks and options. Woods, who also leads the Intelligence Report investment newsletter, is a former Army paratrooper who has strategically invested in defense stocks that are involved in the space industry.
Paul Dykewicz meets with Jim Woods, head of Bullseye Stock Trader.
NASA’s Artemis I mission, with the Lockheed-Martin-built Orion spacecraft, launched to the Moon on Nov. 16 with the plan of leading the world into a new era of human deep space exploration. The test flight marked the first of what is planned to be a series of missions under NASA’s Artemis program, which is expected to result in the first woman and first person of color landing on the Moon.
Orion lifted off aboard NASA’s Space Launch System rocket at 1:47 a.m. ET on Nov. 16, and two hours later, the spacecraft separated from the booster’s upper stage traveling at 22,600 mph. That speed put it on a trajectory to break away from the gravity of the Earth and travel to the Moon.
“We’re witnessing history as Artemis I brings us one significant step closer to making NASA’s vision for human deep space exploration a reality,” said Robert Lightfoot, executive vice president of Lockheed Martin Space, in a statement. “Through a nationwide industry team that has also leveraged an international industrial base, this launch and mission unite the skills of a dedicated workforce and innovative technologies to make a global impact.”
Chart courtesy of www.stockcharts.com
Could Launch Vehicle Stocks Rise? Northrop Grumman Is a Large NASA Contractor
Northrop Grumman, a multinational aerospace and defense technology company headquartered in Falls Church, Virginia, teamed up with NASA in July successfully to conduct a full-scale static fire of NASA’s Space Launch System (SLS) rocket motor, known as Flight Support Booster-2. The five-segment solid rocket booster is slated to have the world’s largest solid rocket motor to provide more than 75% of the SLS rocket’s initial thrust during launch.
During the test flight, more than 300 measurement channels assessed the 154-foot-long solid rocket booster as it fired for slightly more than two minutes to produce upwards of 3.6 million pounds of thrust. The test evaluated new materials and demonstrated an ignition system and an electronic thrust vector control system to steer the motors to provide data for the development of the next-generation Booster Obsolescence and Life Extension (BOLE).
Northrop Grumman won a contract to develop the BOLE booster in December 2021. The award included follow-on production and flight sets for Artemis IV through Artemis VIII, and a BOLE booster set for Artemis IX.
Michelle O’Connell, who leads Dallas-based Portia Capital Management, recommends Northrop Grumman. The company’s involvement in the growing space launch program only enhances its appeal.
Michelle Connell leads Dallas-based Portia Capital Management.
Continuous product improvements and obsolescence mitigation helps NASA achieve its long-term mission to use SLS for its Artemis program, said Wendy Williams, vice president, propulsion systems, Northrop Grumman. This test offers a chance for early learning on next-generation systems, she added.
Chart courtesy of www.stockcharts.com
Musk’s Purchase of Twitter Injects Big Risk into His Entrepreneurial Empire
With Musk periodically selling big chunks of Tesla stock, at least partly to fund his purchase and ad-depleted operation of risk-filled Twitter Inc., the electric vehicle manufacturer’s shares may drop even further before they start to climb again. Skousen is among those who have expressed concern Musk may be overextended by trying to turn around financially struggling and politically charged Twitter while also leading Tesla and SpaceX.
Russia’s decision to leave the ISS can be seen as another example of the accelerated decoupling of Russo-American space relations, which could serve as a catalyst for Western-based space companies to fill the breach left by Roscosmos, BofA wrote in a recent research note. Demand for launch services should not soften during the next decade, but rather create a “vast window of opportunity” for U.S.-based manufacturers and operators, the investment firm added.
In March 2022, Elon Musk’s SpaceX delivered a shipment of Starlink satellite kits to Ukraine in the wake of the Russian assault on its neighboring nation. Musk’s generosity further solidified the growing significance of space companies in today’s society and geopolitics. Private space companies and their supporters are gradually becoming strong political forces, BofA wrote.
Could Launch Vehicle Stocks Rise? Global Government Investment in Space Jumps
Amid the Cold War, the global space industry resembled a state-sponsored duopoly. The United States and Soviet Union directed most of the global spending toward space-related products and services but several other nations also began developing their own space programs by the 1970s, BofA noted.
In addition, other countries explored space aboard either Soviet Soyuz capsules or American Space Shuttle missions, BofA wrote. The international programs were “not symbolic,” but a testament to the growing space programs of both developed and developing nations, the investment firm added.
More than 50% of global government space expenditures currently comes from the United States, with global tension and countries such as China, Russia and others seeking to “militarize the cosmos” and increase their budgets for space, BofA wrote.
Even though NASA traditionally owned and operated its own spacecraft, a watershed moment that ended the practice occurred with the Space Shuttle shutdown in 2011 that caused the United States to rely on third-party contractors to travel to space. That led the United States to turn to the Soyuz spacecraft of the Russian State Corporation for Space Activities, known as Roscosmos, to transport astronauts to the International Space Station. The following information, adjusted for inflation, is eye-opening about the disparity in pricing between U.S. and Russian government launch costs.
“The decision to pay Roscosmos to ferry Americans to and from the ISS shocked many, a step away from Cold War rivalries and toward collaboration,” BofA wrote. “Initial prices were relatively cheap, costing NASA $27.1 million per seat in 2006 compared to $170 million per seat cost to operate the Space Shuttle.”
Could Launch Vehicle Stocks Rise? Russia’s Huge Price Hikes Sabotage Its Cost Advantage
Until the beginning of the Russo-Ukrainian war, the Russian space agency was NASA’s 17th largest contractor, with 15 contracts totaling $185 billion. In retaliation to the sanctions imposed by the United States on Russia for the latter country’s invasion of Ukraine and attacks on civilians, the collaboration largely has ceased. In fact, Roscosmos denied itself a good business opportunity by stopping delivery and maintenance of RD-180 Russian-made boosters to NASA.
Russia’s war not only has devastated Ukraine but led to an estimated 100,000 deaths on each side, according to top U.S. Gen. Mark Milley. In addition to the immense human toll, Russia has incurred stiff economic sanctions aimed at swaying its leaders to stop their violence and retreat to their country’s own borders. However, Russia’s President Vladimir Putin has refused to negotiate a peace agreement and instead escalated the conflict by holding what were described by observers as “sham referendums” aimed at seizing Ukrainian territory in the Crimea region against international law.
Putin, who described the invasion of Ukraine that he ordered as a “special military operation,” has unified the vast majority of countries in the United Nations against the war and Russia’s aggression. His bombing of Ukrainian power stations and countless civilian targets have further shown his brutality, while he continues to pursue an invasion that is sacrificing lives with no apparent gain in sight.
Russia More than Triples Charges to NASA to $90 million-plus per seat
“After the Space Shuttle’s discontinuation, Roscosmos began raising the price for American passage to the ISS, likely the result of NASA having no other viable option at the time,” BofA opined. “After a 2015 contract modification, NASA had to pay Roscosmos approximately $81.9 million per seat in 2018, a 384% increase over a single decade. Had a commercial option been secured by 2015 as initially expected by NASA, the agency could have saved over $1 billion in payments through 2018 to the Russian space administration.”
The most recent seat purchase came in May 2020, when NASA agreed to pay Roscosmos $90.3 million to send an American astronaut to the ISS. NASA obtained an additional seat on a Soyuz launch in April 2021 by swapping a seat on a future U.S. commercial spacecraft slated to launch in 2023 as part of a space station crew rotation mission. After the SpaceX Crew Dragon’s first flight to the ISS in May 2020, NASA expressed hope that paying for Soyuz flights will become unnecessary.
With such extreme price increases, it was just a matter of time before market forces would give private businesses incentives to replace Russia as a key launch services provider for the U.S. government.
China’s COVID Cases Reportedly Surge After Easing of Its Zero Tolerance Policy
China reported two COVID-related deaths on Monday, Dec. 19, as doubts mounted about whether the official count was capturing the full toll of a disease that is tearing through cities in the world’s most populous nation, following its government’s newly relaxed anti-virus controls.
Frequently criticized for perceived underreporting of cases and deaths, China’s acknowledgement on Monday of two COVID deaths that day became the first to be reported by the country’s National Health Commission (NHC) since Dec. 3. Shortly thereafter, China’s leaders announced they would lift restrictions aimed at keeping the virus contained for the past three years. Large protests in many of China’s cities last month apparently swayed the nation’s leaders to modify its policy of strict lockdowns of communities where COVID outbreaks occurred.
China’s economy may gain a short-term boost from relaxing its COVID-19-related lockdowns, but a spike in cases and deaths in that country could cause shutdowns to resume. Lockdowns cut the supply of goods and prevent many people from working, shopping and obtaining additional food. A real estate slump also could ensue in the world’s second-biggest economy.
U.S. COVID Cases Top 100 Million
COVID-19 cases in the United States totaled 100,003,814 and deaths climbed to 1,088,236, as of Dec. 20, according to Johns Hopkins University. America has the dire distinction of incurring the most COVID-19 cases and deaths of any country. Worldwide COVID-19 deaths hit 6,669,729 people, up more than 6,000 since Dec. 16, while total cases reached 654,490,212, Johns Hopkins reported on Dec. 21.
The U.S. Centers for Disease Control and Prevention reported that 267,907,969 people, or 80.7% the U.S. population, have received at least one dose of a COVID-19 vaccine, as of Dec. 14. People who have completed the primary COVID-19 doses totaled 228,831,995 of the U.S. population, or 68.9%, according to the CDC. The United States also has given a bivalent COVID-19 booster to 44,154,294 people, up more than 4 million people in the past week, who are age 18 and up. The percentage of the U.S. population to receive the bivalent booster now accounts for 16.3% of the 18 and up age group, versus 15.5% a week ago and 14.7% the week before that.
As for the war in Ukraine, Russia launched at least 76 missiles at different parts of Ukraine, including Kyiv, Odesa, Poltava, Zhytomyr, Kharkiv and Sumy, on Friday, Dec. 16, according to the Ukrainian Air Force. Russia is continuing its barrage of strikes that began in October that have damaged Ukraine’s energy and civilian infrastructure, causing power outages during freezing winter conditions.
Could launch vehicle stocks rise beyond the skies? Russia’s decision to end is collaboration in space with the United States and other Western nations who have supported economic sanctions against the aggressor in its continuing attack of Ukraine have increased interest among U.S. launch service providers to seize a heightened share of the U.S. government’s growing number of space exploration missions.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Special Holiday Offer: Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great holiday gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases.