Picking themes of the future may seem easy on the surface. After all, it’s easy to assume that great exciting trends in health, science and technology are going to dominate the future. What is not so easy is picking the winners of those themes of the future. Investing in future trends can come with many pitfalls. There often many speculative companies, huge barriers to entry, issues of life and death, endless regulations, and potentially endless billions of dollars for capital spending and cash burn.
Space is one of the areas of the future that captures the imagination of millions of people in America alone. And it’s not just about Star Wars, Star Trek and the like. Billions of dollars are already being spent in the area of privatizing space. Many private sector opportunities exist, and then there are of course the endless billions worth of dollars spent by the world’s top governments on space.
Merrill Lynch’s Thematic Investing Strategy team has looked into the theme of investing in space. This is a speculative strategy compared to many investing themes, particularly considering that some of the great ideas and efforts still won’t be seen for well over a decade. The team sees a $339 billion space market today, but it sees the area being worth $2.7 trillion by 2045.
There are some big barriers to entry when it comes to space. Over $16 billion has been invested in start-ups targeting space since 2000, with 2016 seeing a record $2.8 billion in investments alone. Opportunities revolve around defense, launch, satellites, finance and more. And some of the world’s billionaires are heavily investing into space themes: space tourism, intercity rocket travel, asteroid mining, moon colonization, Mars, and deep space or interstellar exploration.
Again, there are big risks when it comes to investing in space. The technical risks are huge, like losing the life of the people trying to fulfill the goal. There are massive issues around unprofitability, failed launches and heavy regulations. There is even space debris risk and solar storms, all of which can serious wreck your day.
24/7 Wall St. has broken out nine of Merrill Lynch’s 70 or so companies listed. These nine companies all have Buy ratings, established businesses and upside expected by the team.
Ball Corp. (NYSE: BLL) is considered a space winner due to its metal container payload for launch vehicles with SpaceX and as a NASA space contractor. Merrill Lynch’s Buy rating is accompanied by a $47 price objective, implying about 18% upside. Ball shares are up only about 7% so far in 2017, and it has a 52-week trading range of $35.65 to $43.24 and a consensus analyst price target of $45.55.
Ball may be best known for food, beverage and product packaging, but it’s space systems build and integrate the instruments and spacecraft, with services from launch vehicle contracting and commissioning activities to mission control facilities and support — and even to and remote ground stations and data analysis.
Boeing Co. (NYSE: BA) has many space-related efforts. Merrill Lynch has a Buy rating with a $290 price objective, roughly 10% higher than the recent $262 share price. Boeing has a 52-week range of $144.46 to $267.62 and a consensus price target of $280.15. Its stock is up about 68% so far in 2017, and it has been the best performance in the Dow Jones Industrial Average this year.
Boeing is involved in so many aspects of aerospace and defense that overlap with space that it may be hard to list it all. It is into launch, satellites, space systems, the space station, and so on.
Hexcel Corp. (NYSE: HXL) is considered to be a leading advanced structural materials provider, the leader in carbon fiber composites, and it is also used by SpaceX and Blue Origin. Hexcel is rated as Buy at Merrill Lynch, and the $70 price objective implies upside of 17% from the recent $60 share price. Hexcel has a 52-week range of $47.98 to $62.02. The consensus price target is $61.67. The stock is up about 17% so far in 2017.
Hexcel is into launchers and satellites, as well as payload carrier assembly, components and parts, and heat shields.
KBR Inc. (NYSE: KBR) is far more diversified than space operations, but Merrill Lynch included the company as an engineering services contract by NASA to support exploration missions. It also acquired Wyle in 2016 with a NASA space medicine contract. Merrill Lynch’s Buy rating comes with a $20 price objective, implying upside of 13.5% to the target. KBR has a 52-week range of $13.36 to $21.25, and its consensus price target of $21.58 is higher than Merrill Lynch’s target. KBR shares have risen only about 5.5% so far in 2017.
KBRwyle’s science and space operations services cover a broad spectrum of disciplines: life sciences, extreme environments, health and human performance, and spacecraft and ground systems mission support. It also monitors seismic activity and biological, chemical, and nuclear threats.
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