PL - 3 Space Stocks to Buy With Explosive Upside Potential

2023-06-23 06:06:32 ET

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For many years, it had seemed like humanity had lost the urge to explore the cosmos. A series of setbacks at NASA had dimmed expectations. Progress was failing to keep up with what we had imagined in science fiction movies. But that’s changing quickly now, making top space stocks to buy an exciting arena for investors going forward.

A key component of this change has been the rise of private investment in the industry. Now it is daring billionaires such as Elon Musk and Jeff Bezos that are leading the charge toward more and faster experiments in the stars. The exact contours of the opportunity for high potential space stocks remain somewhat unclear. Will the leading space stock opportunities be in satellites, low-gravity manufacturing and mining, space tourism, moon colonization or other fields?

There is a lot still to be discovered and researched as we advance toward these end goals. Regardless, the possibilities are endless, and could come surprisingly quickly as firms like SpaceX continue to pump untold billions of dollars into advancing the field. As such, it may be time to buy these space stocks today.

Redwire (RDW)

Redwire (NYSE: RDW ) is a former special purpose acquisition company (SPAC) focused on the space industry. It came about as a roll-up of a number of different small space production and services companies, and went public via a SPAC. Not surprisingly, like most recent SPACs, RDW stock plunged shortly after its debut. And there’s a good argument that $10 was too high of a price for Redwire shares at launch. But investors should give this space stock a second look.

Redwire is the combination of more than half a dozen different space-related companies that have been merged together. The company is involved in launch accommodations, satellite payloads, solar arrays, engineering services and digital engineering and modeling among other fields. The idea being that over time, Redwire can become a one-stop shop offering a wide range of products to customers and enjoy scale benefits.

These are starting to pan out, judging by the company’s latest earnings report. Revenues of $58 million soared past the analyst estimates of $48 million. Meanwhile, gross margins jumped from 16% to 25%, showing significant momentum on the push toward profitability. Redwire is still losing money overall, but its losses are narrowing and revenues are growing quickly. The company is on the right trajectory.

Planet Labs (PL)

Planet Labs (NYSE: PL ) was founded by ex-NASA scientists to commercialize the Earth imaging industry.

Specifically, Planet aims to take satellite imagery of the entire globe each and every day. Its database of satellite imagery has the highest frequency in the industry for many locations, making it great for quickly tracking changes on the Earth.

This can be useful in a vast array of industries. Everything from shipping to forestry, agriculture, disaster response, oil and gas, and many more clients benefit from having frequently updated images of the Earth. As applications such as artificial intelligence take off, there should be more and more utility from these satellite images which will greatly increase the total addressable market.

An underappreciated part of the Planet Labs story is its balance sheet. As of last quarter , it had $376.2 million of cash and short-term investments on hand. This is a huge number in comparison to the firm’s roughly $925 million market cap. It also gives Planet plenty of time to continue growing its customer base and scaling up operations. Planet Labs hasn’t been an overnight success, and early investors are understandably getting impatient. But revenues are growing at more than 30% per year and operating losses are shrinking. With the large cash balance, there is plenty of time for Planet to become strongly profitable.

Lockheed Martin (LMT)

For a more conservative and stable pick in the space industry, Lockheed Martin (NYSE: LMT ) is a great choice.

Investors primarily think of Lockheed Martin as a defense company, and that’s accurate. Its largest revenue line is aeronautics, and it also has key revenue lines such as rotary and mission systems, and missile and fire control on the defense side. However, space has grown to be a nearly $12 billion a year business for Lockheed Martin and makes up roughly 20% of the company’s overall annual revenues.

The space business produces satellites and space transportation systems. It also has defense components such as strategic advanced strike units. The United States’ move to create an official Space Force a few years ago should generate further interest in government spending for these sorts of capabilities. At the same time, the satellite and transportation business can naturally grow as commercial space activities multiply.

The appeal of LMT stock is that it offers investors a mature and highly profitable business. Shares go for just 17x forward earnings and offer a 2.6% dividend yield. Meanwhile, the space unit is in there as well, poised to add significant upside as demand for those services grows.

On the date of publication, Ian Bezek held a long position in LMT stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .

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