Picks in Space
Max is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Could a new private space race inject some dynamism into dinosaur defense contractors?
Without government largess, many companies wouldn’t exist at all. Specifically, because the U.S. government enjoys a virtual monopoly on military power, defense and military contractors live almost entirely on that big trough that runs alongside the Pentagon. Otherwise, aerospace companies have been suppliers to an $18 billion-a-year monopsony called NASA.
But that may soon be changing.
Enter: the private space race. Both publicly and privately traded firms are reconfiguring themselves in an effort to go where no man has gone before.
SpaceX’s Dragon made headlines recently by being the first private spacecraft to dock with the international space station. Elon Musk’s company is also gearing up to shuttle people into space in the next few years. And rumors have been swirling that SpaceX may soon go public.
Other private space firms like XCor, Virgin Gallactic, and Bigelow Aerospace are poised to profit from ventures beyond the stratosphere. So what will that mean for the usual suspects that, historically, have been latched to two teats called NASA and DoD?
It could mean leaner, meaner companies that compete head-on in industries like space tourism, asteroid mining, and space exploration. These nimble private space upstarts are going to give those gubment incumbents a run for their margins. But that competition could make these publicly traded companies far more dynamic than they have been historically.
What publicly traded space companies may soon well be roused from their slumbers of bureaucratic dependence? Here are some favorites -- and these are medium-to-long-term picks:
- Honeywell (NYSE: HON) - This Fortune 100 company “invents and manufactures technologies to address tough challenges linked to global macrotrends such as safety, security, and energy.” This global company competes in the technology innovation and manufacturing space.
- Boeing (NYSE: BA) - The aerospace conglomerate operates in a number of segments: commercial airplanes, aircraft and weapon systems, network systems, support systems and launch and orbital systems (together - Integrated Defense Systems (IDS)). With these assets you can bet Boeing will be a space player.
- GenCorp (NYSE: GY) - This firm operates as a technology-based manufacturer primarily in the U.S. GenCorp specializes in aerospace and defense.
- Lockheed Martin (NYSE: LMT) - This large contractor has a robust presence in both satellite technology and space exploration, in addition to its aerospace and defense products.
- Northrop Grumman (NYSE: NOC) - Among other products like electronics and information services, Northrop Grumman is “a premier provider of manned and unmanned aircraft, space systems...”
We’re not likely to see NASA’s budget slashed to the bone, although projects show the agency holding steady at the 2009 budget levels going forward. Whatever one thinks about NASA’s output per dollar spent, one fact is clear: NASA diverts resources -- financial and human -- from other activities. The budding private space industry will therefore have to continue to move ahead either depending on NASA as a quasi-monopsony or competing with the beast head on.
Still, there is a lot of new action in this arena -- especially as space tourism becomes more affordable. And the action is only going to heat up as the competition does. This will mean prices go down, firms get leaner and space innovations will travel down the channels of diffusion. But I’d caution investors not to see these as short-term plays. These firms will have to undergo disruption and internal change before catching stride in this brave new journey to the stars.
Max Borders is author of the forthcoming Superwealth (Fall 2012).
MaxBorders has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.