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Capital Acumen 34

Investing in the Modern (Space) Age

As the aerospace industry enters a new golden age of exploration, here's what investors should know about this extraordinary expansion.

Astronaut with stock ticker reflection in reflection of helmet.

Photo credit: Julie Green and Getty Images

The universe may be infinite, but it seems that our neck of the woods is about to get a little more crowded. That’s because thousands of pieces of “space junk” already in Earth’s orbit may soon be joined by tons more.1 Satellites, rocket stages, even weaponry are all scheduled to go up over the next few years, with testing and development currently under way.

Government organizations such as the National Aeronautics and Space Administration (NASA) and the United States Department of Defense (DoD), as well as a number of large public companies (with market capitalizations ranging from about $50 billion to $200 billion) and some small privately held companies, are all engaged in missions that include:

  • Replacing the aging 24-satellite Global Positioning System (GPS).
  • Launching a new space telescope and turning on a new “exoplanet”-hunting satellite.
  • Establishing a constellation of “micro” satellites for a high-speed global Wi Fi system.
  • Responding to reported advances in Russian and Chinese “hypersonic” rocketry.
  • Flying astronauts to the Moon (rocket testing is already under way).
  • Transporting the first humans to Mars (rocket and habitat testing is under way).

(More information, including references, is available throughout this article.)

For space geeks, this promising launch lineup can mean only one thing: Pure heaven! As for investors, “They might not be as enthusiastic, for various reasons,” says Joseph P. Quinlan, head of Market Strategy at U.S. Trust. “Some people may know very little about investing in space while others may view the potential opportunities as sparse or ill-defined. But we think all of this is about to change.”

Just as Earth’s first Space Age famously began in 1957, with the launch of the Soviet satellite Sputnik, “we’re now entering a second age of space exploration, and it stands to create more plentiful and diverse investment opportunities,” Quinlan says. (For more, see “How to Invest in Space Travel” below.) So buckle up, start the countdown, and read on to learn more about major missions on the launchpad.

SPACE RACE: THE SEQUEL

With a crossover in certain technology and resources between the space program and the United States military, it is no surprise that an important source of space-related funding could come from the Pentagon. “Much of U.S. military superiority has relied on our technological dominance in space, allowing us to see, hear and know more than our adversaries,” says Cameron L. Dawson, an analyst in U.S. Trust’s Macro Strategy group. Recently, however, China and Russia have made advances in areas like hypersonic-glide rocketry, and the U.S. DoD is concerned.2,3

THE MILITARY: The United States Air Force plans to spend $109 million in 2018 and $257 Million in 2019 on a new space-based missile warning system.4

“The DoD has signaled that significant investments will be needed in order to prevent our space dominance from being eroded,” Dawson says. That sense of urgency is reflected in the department’s 2019 budget request, which includes:4

  • About $9 billion for space programs, including almost $5 billion for satellites and $2.4 billion for rockets.
  • An 8% increase in the Air Force space budget request compared with the previous year.
  • An increase in Air Force planned spending (from $71 million to $643 million) for a new space-based missile warning system.
  • A boost in spending for hypersonics from $109 million in 2018 to $257 million in 2019.

Hypersonics. How are these missiles different from U.S. weaponry currently in place? “America’s decades-old standard of nuclear-payload delivery, the intercontinental ballistic missile, or ICBM, was designed to fly briefly into space and then descend to its target on a fairly predictable parabolic trajectory,” says Dawson. “In stark contrast, once a hypersonic re-enters Earth’s atmosphere, it can fly at many times the speed of sound and use unpredictable flight patterns that may confuse or evade radar.”

Space-based radar. What the DoD seems to want, in addition to its own hypersonic fleet, “is the ability to detect the missiles earlier in their flight path, before they become unpredictable,” Dawson says. “While current ground-based radar often cannot see that far due to the curvature of the Earth, an array of space-based sensors would provide almost total coverage of the planet.”5, 6

While there may be a dozen or so tracking satellites already in orbit, they are apparently showing their age. Not only that, “some are the size of a school bus and could provide easy targets for a foreign power seeking to damage U.S. capabilities,” Dawson says. A new array could consist of hundreds of “micro” satellites, “drawing on the kind of miniaturization technology that already put powerful smartphones in our pockets,” the analyst adds. “An adversary would have a far more difficult time disabling a widespread constellation.”

Dawson believes that investment opportunities may be found in “those public companies that are making investments in areas prioritized by the DoD — space being among the most important.”

Space Innovations Come Down to Earth

Illustration of water drop

 

 

Water purification: A variation of a NASA system is used in at-risk countries.

 

 

Space Innovations Come Down to Earth

Illustration of plug emitting light

 

 

LED technology: Light-emitting diodes were first developed as a light source to grow plants in space. Similar technology is now used in televisions, car headlights and many other areas.

 

Space Innovations Come Down to Earth

Illustration of human heart

 

 

Heart surgery: NASA-developed lasers used to monitor gases in the atmosphere have since been adapted to help surgeons treat patients suffering from arterial blockage.

 

Space Innovations Come Down to Earth

Illustration of smart phone with health icon

 

Pill transmitters: Using a technology developed to monitor astronaut health, doctors can now use “smart pills” to deliver drugs and to collect and transmit patient data, such as blood flow and heart health.

 

 

Space Innovations Come Down to Earth

Illustration of solar panel with sun

 

Solar panels: Technology NASA developed decades ago, to power spacecraft by the sun’s rays, now forms the basis of today’s solar panels, and the space agency is working on improved panels with increased efficiency.

 

 

PROJECTS (ALMOST) AD INFINITUM

NASA, its longtime contractors and a handful of private companies are working on an array of primarily nonmilitary space missions. Launches are scheduled for this year, or the near future, but no matter the timeline, the complexities of space flight can mean project delays, cancellations or other, more serious setbacks. Here’s a look at some of the plans NASA and others have in motion.

New satellites. After several delays, the Hubble Space Telescope’s successor, the James Webb Telescope, is now scheduled to launch in 2020.7 The Transiting Exoplanet Survey Satellite (TESS), recently placed in orbit, should soon begin searching for planets beyond our solar system.8 The first satellite in the next iteration of the Global Positioning System (aka GPS III), which is said to be far more accurate than today’s version, should launch later in 2018.9 (For more, see “GPS: The Time (and Place) of Your Life,” below.)

THE MOON: NASA is testing technology that could return humans to the moon within a few years. 

Missions past Earth. NASA is testing technology that could return humans to the Moon within a few years.10 The agency is also scheduled to send survey satellites and a new rover to Mars within a decade, and could put humans in orbit there by the early 2030s.11 Similarly, at least one privately held company is forging ahead with tests of rocketry and habitats, to send humans to live on Mars.12 (Note that a return ticket is not, and may never be, an option.) NASA’s Parker Solar Probe, which is about the size of a small car, is scheduled to blast off soon on a mission to skim the atmosphere of the sun.13

Illustration of space shuttle heading towards a city on another planet.

Photo credit: Julia Green

Space commuter craft. A longtime NASA contractor and a privately held space company are both testing rockets designed to transport U.S. astronauts to and from the International Space Station (ISS), beginning in 2020.14 Since shutting down the Space Shuttle program in 2011, the agency has been buying seats on Soyuz spacecraft, but its contract with the Russian space agency ends in 2019. A private U.S. company, however, has been delivering supplies to the ISS.

Space tourism. For several years, a number of private companies have been testing short distance, “human-rated” vehicles to carry tourists to and from the upper atmosphere and beyond.15 More recently, a private company announced that the first off-world hotel, modular in design and featuring “luxurious accommodations,” should open for business in 2022, with reservations available now.16

Global Wi-Fi. A private company, following up on its plans to provide fast Wi-Fi access globally, recently launched two of what should eventually be a constellation of more than 10,000 “micro” satellites.17

GPS: The Time (and Place) of Your Life

With a major overhaul imminent, here’s a look at the scope of the U.S. Global Positioning System (GPS).
: Illustration of Earth with satellites orbiting.

Photo credit: Grey February/Getty Images

The next time you use your smartphone’s navigation app, take a moment to thank the Cold War, relativity and the chemical element cesium. Here’s why.18

Space Race. In 1957, the Soviet Union launched Sputnik, the world’s first satellite, igniting the U.S.-Soviet Space Race. The craft emitted a regular radio “beep,” and American engineers tracking it reportedly had a realization: An array of similarly beeping satellites, together with processes such as trilateration, could help ships, aircraft and people pinpoint their location almost anywhere on the planet.

Defense. Envisioning a slew of advantages, the U.S. military, in the late 1970s, deployed the first of 24 craft in the Navigation System with Timing and Ranging Global Positioning System, or NAVSTAR GPS.

Civilian access. A decade or so after completion, the system was opened up for civilian use. GPS devices and then navigation apps soon followed.

Replacements. Although the system has been tweaked over the years, with ground-based stations and additional satellites, it is aging. The first of a new flock of “birds,” collectively known as GPS III, is scheduled to launch this year, with the full configuration in orbit within a decade. GPS III promises even greater accuracy, connectivity and security.

Relativity. At the heart of each GPS satellite are several atomic clocks. While incredibly precise, the clocks are nevertheless subject to influences predicted by Albert Einstein’s Theory of Special Relativity (a clock moving in space “ticks” more slowly than one on Earth) and Theory of General Relativity (a clock ticks faster the farther it is from a massive gravitational object — in this case, the Earth). Onboard computers programmed to offset these relative differences are necessary to provide exact time readings globally.

Cesium. The atomic clocks on GPS satellites use cesium atoms, for time-keeping accuracy of 1 part in 1012. It would take 32,000 years for one to gain or lose a single second.

Asteroid mining. This may sound like science fiction, yet NASA did in fact launch a spacecraft in 2016 that is scheduled to visit an asteroid named Bennu later this year and return with a rock sample in 2023.19 Furthermore, a private company plans to launch a fleet of crewless spacecraft in 2020, with the goal of analyzing the composition of passing asteroids. The one with the most promising makeup of minerals — perhaps those that are rare on Earth — may be targeted for actual mining at a later date.20

THE CLEANUP: Companies have been testing methods to remove garbage from space or shift it to a less traveled “graveyard” orbit. 

Cleanup crew. The volume of orbiting waste, including defunct satellites and spent rocket stages, seems likely to expand exponentially, and with it the threat of “collisional cascading” — known as the Kessler Syndrome — would intensify. In response, several companies have been testing methods to remove garbage from space or shift it to a less traveled “graveyard” orbit.21

How to Invest in Space Travel

By Joseph P. Quinlan, Head of Market Strategy, U.S. Trust

Headshot of Joseph P. Quinlan, Head of Market Strategy at U.S. Trust

Photo credit: Andy Ryan

THE GLOBAL AEROSPACE industry is in the initial stages of what promises to be an extraordinary expansion. The National Aeronautics and Space Administration (NASA) and its massive longtime contractors, as well as private space companies and, more recently, near-peers China and Russia, all have grand plans of their own. Some proposals include journeys to the Moon and Mars, a new Global Positioning System (GPS) and a global Wi-Fi system, tourist flights to the edge of space and even a space hotel. New hypersonic weaponry, more advanced than almost anything in the U.S. arsenal, is likely to prompt serious investment by the Pentagon.

  • We believe the most direct way of investing in this expansion is through large, publicly traded aerospace corporations (although, as manufacturers of commercial jets, they do not provide a “pure play” on space). As U.S. Trust analyst Cameron Dawson notes in this article, companies that align with the Pentagon’s space expansion plans may be particularly attractive.
  • Companies that make products using NASA technology present another opportunity to invest in space, albeit from a considerable distance. (See “Space Innovations Come Down to Earth,” earlier in this article.)
  • Another option is private equity investment in space startups (most of which were founded by well-known Internet billionaires). Investors should watch for investment opportunities if these companies have initial public offerings.
  • New space exchange-traded funds (ETFs) may predominantly include large aerospace companies, but they also provide a relatively easy way to add space to an investor’s portfolio.
  • Public companies engaged in aspects of space tourism may also present an array of other investment opportunities.

All in all, aerospace is a vibrant sector that may soon offer more ways to invest in space than ever before.

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