The stock market may have crash-landed on Earth, but space stocks have not succumbed to the power of gravity.
Despite a pandemic slump, space companies saw a record year in 2020. With about $25.6 billion in investments and exciting missions on the horizon, the industry doesn’t look like it’s slowing down anytime soon.
In turn, stocks in the sector are likely to experience a boost in valuations in the coming year with the discovery of new constellations entering the earth’s orbit. A particular area of interest is space tourism with companies like Virgin Galactic (NYSE:SPCE) and Elon Musk’s Space X making waves in the sector. And as we continue to explore what lies beyond our atmosphere, you can expect space stocks to continue to benefit.
With that in mind, I think three companies in particular are headed to the moon. They are:
Now, let’s dive in and take a closer look at each one.
Space Stocks to Buy: Lockheed Martin (LMT)
Lockheed Martin is perhaps well-known for being the U.S. government’s defense contractor, but the company is making its mark outside the earth’s orbit as well.
The space division’s activities include the production of government and commercial satellites and space launch expeditions. Some of its major projects include the Orion Multi-Purpose Crew Vehicle and the Trident II D5 fleet ballistic mission. That said, Lockheed — together with Los Angeles-based rocket builder ABL Space — hopes to launch a historic mission from Scotland in 2022.
In terms of revenue, the company’s growth has been impressive. Although earnings didn’t beat estimates in its previous quarter, it did see a sequential increase. Total sales in the space division for Q4 netted $3.2 billion. Lockheed also reported a production backlog due to the pandemic. As these orders are completed, it will translate to higher revenue numbers in the future. Approximately $25 million of Lockheed’s backlog comes from its space operations.
Looking at the long-term, the company has numerous growth opportunities in the Space and Hypersonics programs. Its recent of acquisition of Aerojet Rocketdyne will help it further its research and development in the field.
Leidos Holdings (LDOS)
Another major player in the aerospace sector is Leidos Holdings. In addition to its space division, the company has operations in defense and health — generating nearly 88% of its revenue from government contracts.
Overall, the pandemic pummeled Leidos’ finances, but it also paved the way for the company to generate greater revenue in the future. The digital work environment has increased the threat of cyber attacks which is one of Leidos’ core areas of operation. The potential for growth in this space could add significantly to its bottom line. In fact, the firm’s estimated revenue guidance for 2020 is $12.3 billion to $12.5 billion.
As for its space division, the company offers various services such as payload design and human factors engineering. It has transported airspace cargo for various companies including Orbital ATK and Space X.
Overall, Leidos is a high-growth player in the sector and recently inked a 10-year contract worth $1.7 billion to improve the National Airspace System for the Federal Aviation Administration. The company’s market value isn’t too high right now, but given the tailwinds in the defense and airspace divisions, this space stock is a great long-term buy.
Space Stocks to Buy: AeroVironment (AVAV)
AeroVironment manufactures small drone technology specifically for military use. Unlike many companies in the sector that were battered by the pandemic, the space stock saw some big gains in 2020. For one, shares of the company are up more than 75% from 2019, trading at $117.70 as of now.
This surge can be attributed to the company’s innovative drone technology that has many investors excited for what’s to come. AeroVironment is currently working with NASA to create a Mars drone. Given NASA’s recent achievements in space exploration on the planet, the success of this mission will be a major win for the AeroVironment.
But the company isn’t resting on its laurels and is actively working on expanding its portfolio. Recently the drone-maker announced its acquisition of Arcturus UAV in a $405 million deal. The company manufactures large drones and will help AeroVironment hone its unmanned capabilities. Shares of the company were up 28% on the news with analysts expressing optimism in AVAV stock.
Additionally, AeroVironment’s market value of $2.9 billion is on the lower end of the spectrum, but this also provides a larger runway for growth. Thus, if you are looking for a high-growth play, space stocks like this one are your best bet.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.