2 Industrial Stocks to Buy After the SpaceX IPO
Rocket Lab and Leidos are better-priced space stocks than SpaceX.
By James Halley
The blockbuster initial public offering (IPO) for Space Exploration Technologies (a.k.a. SpaceX) has sent shockwaves through the market, turning it into a multitrillion-dollar giant. That historic debut triggered a temporary liquidity vacuum, with some investors selling off smaller aerospace positions to fund their SpaceX orders, but it ultimately validated the huge scale of the modern space economy.
With SpaceX having a premium valuation that leaves almost zero room for error, the smarter risk-reward plays often lie in the crucial infrastructure and defense partners supporting this boom. Here are three compelling reasons to buy Rocket Lab (RKLB 0.53%) and Leidos (LDOS 1.36%) in a post-SpaceX IPO world:
The valuation arbitrage: Buying growth at a discount
SpaceX has captured the world's attention, but at an astronomical multitrillion-dollar valuation, it has to execute flawlessly just to justify its share price. Doubling your money requires it to reach more than $5 trillion in market value, an incredibly high bar.
Rocket Lab is a space stock with huge potential at a fraction of its market capitalization. It's pulling in record revenue, with $200 million in the first quarter alone, up more than 63% year over year, and has a backlog of $2.2 billion.
The stock gives you an entry into an established, rapidly growing player where operational execution can still yield asymmetric, exponential returns.
Leidos is an even better value, trading at less than 11 times trailing earnings. It is growing revenue more slowly, though, with $4.4 billion in the first quarter, up 4% over the same period last year, but it has a huge backlog of $48.4 billion.
Rocket Lab's Neutron rocket will lift the stock
Until now, SpaceX has dominated the medium-to-heavy commercial launch market with the Falcon 9. But commercial operators, constellation builders, and government agencies desperately want a reliable backup to break that monopoly.
Rocket Lab's highly anticipated medium-lift reusable rocket, the Neutron, is slated for its debut late this year. It will immediately scale up Rocket Lab's payload capacity to 13,000 kilograms (just under 28,700 pounds or 14.3 tons), allowing it to compete directly for the high-margin national security and deep-space missions currently monopolized by SpaceX. The company has already locked in a five-launch deal for the Neutron before it even leaves the pad.
Leidos' single largest financial footprint in space operations is the contract for Advanced Enterprise Global Information Technology Solutions (AEGIS), a 10-year deal that it landed in 2021 with NASA. With the contract valued at up to $2.5 billion, Leidos manages the entire telecommunications, cloud, data center, and cybersecurity infrastructure that connects all NASA centers, enabling the data transmission necessary for deep-space exploration and tracking.
Both space companies are crucial pick-and-shovel plays
Launches grab the headlines, but the real recurring money in the trillion-dollar space economy comes from satellite manufacturing, software, payload integration, and cybersecurity.
More than half of Rocket Lab's revenue actually comes from its thriving Space Systems segment. It builds the solar arrays, flight software, and components that power other companies' satellites. It is also building 18 whole satellites for the U.S. Space Development Agency.
As a premier defense tech contractor, Leidos handles complex data processing, ground control software, and cybersecurity networks that enable space assets to operate for the Pentagon and civil agencies.
As SpaceX dramatically lowers the cost of reaching orbit, the volume of satellites in space will explode. Investors should buy Rocket Lab and Leidos because they provide the essential infrastructure and data systems required to support that huge influx of hardware.
Don't chase the herd into a crowded, expensive megacap IPO. The secondary market sell-off has created a fantastic entry point to accumulate the nimble operators and defense staples that keep the space economy running.