The tech sector has led the market higher in 2023, with the rally largely being driven by the promise of artificial intelligence (AI). But AI is far from the only risk-on trade worthy of bullish capital. Rather it’s time to consider some essential space stocks for investors.
Opportunities in the space sector can be found in the areas of civil, national security and commercial. While each sector operates independently, the infrastructure needs are basically the same.
Recently, the commercial sector (i.e., space tourism) has been getting most of the attention. And, according to Grand View Research, the global space tourism market will expand at a compound annual growth rate (CAGR) of approximately 40% between now and 2030.
While the idea of space travel will always be appealing to our inner child, if you’re looking to make money from the best space stocks, you need to look at the companies that will make the business of space happen.
Here are three top space stocks to buy.
Rocket Lab USA (RKLB)
Like many stocks in this sector, Rocket Lab USA (NASDAQ:RKLB) is a relative newcomer. The company only began publicly trading in 2021. And like many stocks that went public at that time, it did so via a special purpose acquisition company (SPAC).
Unlike some SPAC stocks of that period, though, RKLB stock didn’t exactly go “to the moon.” While shares ran up as much as 70% in the first few months of trading, they fell sharply in 2022. Anyone who bought in during the early days is still waiting to break even.
The company, which provides launch services and space systems solutions for the space and defense industries, is not yet profitable. However, revenue grew 35% year over year in the first quarter. And with revenue expected to increase at a more than 40% clip this year and more than 50% next year, profits are likely to follow.
The company does a significant amount of business with the federal government, including NASA. This connection actually weighed on shares in early 2023 as investors grew concerned about possible budget cuts. Now that the budget crisis is over, though, the relationship is proving to be a bullish catalyst.
The stock got a boost earlier this month when it announced the successful launch of seven satellites for NASA. For the year, RKLB stock is up 78.5%.
Leidos (LDOS)
Compared to Rocket Lab, Leidos (NYSE:LDOS) is a grizzled veteran. The company has been around since 1969 and publicly traded since 2006.
As my Investorplace colleague Josh Enomoto notes: “Over the past 50 years-plus, Leidos supported deep space exploration and human spaceflight projects through its technical expertise in information technology, engineering, and science. Through its decades of acumen, Leidos delivers space-industry applications for defense, intelligence, and civilian agencies.”
In addition to being one of the top space stocks, Leidos also delivers artificial intelligence and machine learning solutions. Yet, despite the hype surrounding AI, LDOS stock is down 12% in 2023 thanks to a Q1 earnings miss, as well as ongoing supply chain issues.
However, the company’s revenue growth is expected to remain steady in the mid-single digits, while earnings are expected to grow by 12% in 2024 after contracting slightly this year. While LDOS might not rocket higher in the short term, it should be a solid longer-term pick. Plus, at just 19x earnings, you’re not overpaying for shares.
Lockheed Martin (LMT)
Lockheed Martin (NYSE:LMT) was a strong performer in 2022 amid rising geopolitical tensions, along with other defense stocks. However, shares are down around 8% this year as investors turned their focus back to more speculative names. Further, because of its contracts in the defense sector, Lockheed Martin was dinged by recent debt ceiling negotiations.
But the company’s space division is growing and becoming a larger contributor to revenue. In the first six months of the year, the space segment accounted for 19.2% of overall revenue, up from 17.7% in the first half of 2022. What’s more, space revenue grew 13.8% during the first half of the year, compared with 4.6% overall growth, while the segment’s operating profit grew 14% year over year.
Lockheed Martin is not likely to generate headlines like some of the other top space stocks, but it’s a solid choice for long-term investors looking for safe exposure to the sector.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
