While 2020 was a difficult year, many investors ultimately enjoyed big gains, though they endured a ton of volatility along the way. However, perhaps no one enjoyed the investment year as much as Ark Invest’s Cathie Wood, who just launched a new exchange-traded fund for space stocks.
After the heavy dose of volatility that followed the early stages of the novel coronavirus pandemic, the stock market came roaring back from the first quarter’s free-fall. Helping lead the charge were growth stocks, electric vehicle companies and SPAC offerings.
Some of Ark’s top holdings were the best performers in the market, helping to propel Wood and company to the top of the investment world. That’s part of what allowed her to launched that latest ETF, the ARK Space Exploration & Innovation ETF (BATS:ARKX).
Loaded with space stocks, the 39-stock portfolio has got many investors looking for long-term growth. Even though the fund has many companies with only small exposure to the next frontier, it’s an interesting concept nonetheless
Let’s look at a handful of space stocks in the new ETF:
- Trimble (NASDAQ:TRMB)
- Boeing (NYSE:BA)
- Lockheed Martin (NYSE:LMT)
- Virgin Galactic (NYSE:SPCE)
- L3Harris Technologies (NYSE:LHX)
- Spirit AeroSystems (NYSE:SPR)
- Deere (NYSE:DE)
Space Stocks in ARKX: Trimble (TRMB)
Let’s start off this list of ARKX space stocks with the ETF’s top holding, Trimble. With an 8.73% weighing, Trimble is the largest allocation in the fund, outmuscling the 6.08% weight The 3D Printing ETF (BATS:PRNT) and Kratos Defense & Security Solutions (NASDAQ:KTOS) at 5.84%, and almost twice the allocation of its fourth-largest holding, L3Harris Technologies.
Despite its $20 billion market capitalization, there’s a large number of investors who have just become aware of Trimble due to ARKX’s purchases.
Given that ARKX is not an equal-weight fund, its top holdings must perform well in order for the fund to do well. Analysts expect a rather steady 7.5% revenue growth both this year and next.
For being the top holding, one would think Trimble is launching rockets, building space rovers and connecting satellites. It’s not. Instead, the company boldly claims it’s “Transforming the way the world works.”
Further, “Trimble industrial technology solutions connect the physical and digital worlds to help solve complex industry challenges around the world.”
As an electronics company serving the agriculture, construction, transportation and geospatial industries, Trimble is an interesting pick for ARKX’s top holding. But who are we to doubt Cathie Wood — particularly with TRMB stock fresh off all-time highs?
Boeing is a very interesting pick for this ETF, which has BA stock 3.49% of the portfolio. For all the headaches the company has endured over the past few years due to the 737 MAX, many investors forget Boeing also has a space unit.
At the moment, most of the focus is on Boeing’s passenger jet business and understandably so. It’s where it generates most of its revenue. It’s also understandable given the company’s 737 MAX debacle and with the novel coronavirus wreaking havoc on the travel industry. With flight volumes collapsing in 2020, jet purchases from the airlines have shriveled up.
As we turn the corner to a better year though, investors have their eyes on Boeing’s potential. So, too, does Cathie Wood, apparently. From the company:
“We’re designing and building the future of safe, assured space exploration and commercial access – even as we lead the digital transition of the satellite industry for both government and commercial customers around the globe.”
Don’t forget, Boeing is also a defense contractor, so there’s a lot going on with this company besides passenger jets. In fact, it has a joint venture with the next company on this list…
Lockheed Martin (LMT)
Lockheed Martin is also a defense contractor, but it too has exposure to the space industry. Primarily launching satellites into space, there is a competitive threat in this area from SpaceX. It’s the seventh-largest holding in the ETF, at 4.53% of assets.
In any event, its joint venture with Boeing is called United Launch Alliance, which was formed in 2016. According to Boeing:
“the company has successfully delivered more than 100 satellites to orbit that provide critical capabilities for troops in the field, aid meteorologists in tracking severe weather, enable personal device-based GPS navigation and unlock the mysteries of our solar system.”
In the case of Lockheed Martin specifically, the company also builds satellites, which provide GPS, weather and other capabilities. Lockheed has also invested in hyper-speed technologies, while the company has also built key spacecraft for NASA.
Wood’s selection of LMT stock is a smart one. This company is as involved in space more than almost any other public company.
Virgin Galactic (SPCE)
Every stock on this list has a primary business away from space, but are increasingly getting more involved in this new frontier. With Virgin Galactic however, this is a space company that may get involved in other businesses. It has 2.08% of the portfolio’s allocation.
I love this company as a speculative play. The stock has already shown its explosive capabilities over the past year, while the team continues to make excellent progress. The company is close to launching its space tourism business, with a solid list of pre-registered customers.
While some laugh at the idea of space tourism, others expect it to yield big results. In fact, one analyst said it could be a $20 billion per year business by the end of this decade.
Virgin isn’t stopping there. It’s got its eyes set here on earth, as well. It’s working with NASA to develop high-speed technologies, which could have obvious growth catalysts here on earth. It also recently unveiled a new spaceship.
While SPCE stock is still somewhat speculative for many investors, Virgin also shows great potential and promise for the future.
L3Harris Technologies (LHX)
As mentioned earlier, L3Harris is the fourth-largest holding in the ARKX fund, with a 4.86% weight.
Despite its $43 billion market cap and 2% dividend yield, this one tends to fly under the radar. That’s particularly true given the coverage that other defense companies receive. In any regard, this is one investors should know about.
Although forecasts call for somewhat sluggish revenue growth this year and next year at 3.3% and 5%, respectively, earnings expectations are much better. Analysts expect 11.5% and 11.6% earnings growth in 2021 and 2022, respectively. Double-digit growth is quite impressive, particularly for a stock that trades at just 16 times earnings.
The company has a formidable space division, building flight computers, space antennas and imaging solutions, among other offerings. It’s no surprise Wood found it LHX stock as a solid holding for her new ETF.
Spirit AeroSystems (SPR)
Like Boeing, Spirit AeroSystems is mostly known for its exposure to passenger jets. As such, it struggled in 2020 as the travel industry and aerospace markets took a huge hit. However, business is expected to enjoy a robust rebound. It has a 3.07% weight in the portfolio.
Analysts predict a 17% to rebound in revenue this year to approximately $4 billion before accelerating up to 24.5% growth and roughly $5 billion in 2022 sales.
Not to get too ahead of ourselves, but if it comes to fruition, current forecasts call for another acceleration up to 27.8% growth in 2023, with $6.42 billion in revenue.
If this ends up being the case, SPR stock should have plenty of upside potential, especially with shares still 54% below the 2018 high.
Obviously a rebound in the aerospace market will be a big driver for Spirit’s recovery. But as the producer of wings, fuselages, cockpits and more, hopefully the next frontier can help drive growth for Spirit in the years to come as well.
Of all the stocks on this list, Deere was simply too interesting to pass up. What could an agriculture company have to do with space?
Quite a bit, actually. Enough to make it worth 2.02% of the ETF’s total allocations.
While Deere products have many investors thinking about lawn mowers and tractors, it’s much more than that. Deere actually has a pretty formidable technology arm, part of which is software-based. It also includes sensing solutions, telematics and electronic controls.
The company also has construction, forestry, and utility vehicles, engines (both land and marine-based) and power systems. In other words, it’s a lot more than just a lawn-mower company.
It’s hard to think about DE stock as a space investment for 2021. But going into the future, it’s hard to imagine not having some sort of Deere equipment up there. When it comes to space, companies need the best of the best, and that includes Deere.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.