This article originally appeared in the Irregulars Friday File on August 28. It has not been updated.
Remember our old friends at BreakAway Investor? Well, after a long run of breathless teasers under Andrew Mickey’s name, and a nice spate of the same from Christian DeHaemer, there’s a new guy helming this newsletter, and he’s got a space pick for us.
The new guy is Michael Robinson, and he apparently put together a special report for BreakAway Investor subscribers a few weeks back …
“Inside that report sat a potential 90% winner Michael had identified as one of the next industry leaders poised to bring America back into space.
“Well, it turns out Michael was right… and way ahead of the curve, too. The same low-cost satellite and rocket manufacturer he believes could nearly double your money is already up almost 10% since his report was issued.
“And it’s been mentioned twice in the past week inside the pages of The Wall Street Journal, which notes that “In the shorter term, companies expected to benefit from heightened commercial focus include (this company)”… and if you want to know the name of it, you’ll just have to send for Michael’s report.”
They go on to introduce the new editor in this ad, he’s apparently a former technology and defense journalist, and he tells us how terribly humbled he is to be helming this letter, which apparently has all of it’s picks showing a profit right now. That makes this yet another newsletter that can benefit from public perception — the market has been on a tear this year, and almost every investor has shown great returns since March, but the public perception that things are horrible makes it seem all the more impressive when a newsletter claims to have gotten 50% gains (or whatever) this year, because what still sticks in most investors’ minds is how awful things were last Fall.
But that’s beside the point, really — just remember that when newsletters claim great recent returns, they’re not alone … the S&P 500 is up about 80% over the last six months.
So who is this company that they’re teasing now? A few more details:
“Out-of-This-World Gains… Thanks to This Low-Cost Rocket Maker
“NASA is preparing to return to the moon. The agency has not announced an exact date but expects a lunar launch by 2020. After that we go to Mars.
“Only problem is, we’re currently looking at an aging and accident-prone fleet of space shuttles. The smart money is on the fact that by the time we head back into space on these missions, there’s going to be a whole new form of space transport ready to blast off.
“This low-cost rocket and satellite maker I’ve discovered could play a big role in that switchover.
“Just last December it secured a $1.9 billion contract with NASA that will see it delivering supplies to the International Space Station on eight missions between 2011 and 2015.
“That award actually brings its long-term contracts up to $5.8 billion and counting.
“Not too shabby for a company only trading at around $14.75 recently, huh?
“These guys are all about effectiveness and affordability. That’s why NASA loves to deal with them. They deliver a good product at a better price than almost anyone else.
“And in these tight financial times, that makes them more valuable than ever.
“Analyst Erik Olbeter of Pacific Crest Securities recently told me: ‘As you look out into the long term, [this company’s] prospects with smaller, more affordable satellites look very solid.’
“This company has traded as high as $27.89 in the past year. With the renewed push toward space travel and exploration, its proven contract load and relationship with the government and NASA, and its ability to deliver the best price on its products, I can see it easily returning to these highs again.
“That means if you act quickly and grab a few shares of its stock now, you could be looking at around a 90% return on your money.”
So who is this little upstart with the huge potential?
Thinkolator sez: Orbital Sciences (ORB)
Orbital is the most successful of the early private space startups that aimed to rejuvenate the industry over the last thirty years — it’s not in the same league of leviathans as Boeing or Lockheed Martin, but they do have a lot of government contracts and they’ve been actually flying real stuff into the sky for decades … something that most of the space startups that sprung up to battle for the first space tourists a few years back can’t say. And they have rockets in the Air and Space Museum here in Washington, DC, so they’re definitely not a real newcomer to the stage.
The share price is still fairly near $14.75, and it would have been possible to get about a 10% gain from the recent lows when it dipped to $13 or so at the end of July. And the high for the year was $27.89 as teased though technically that was slightly over a year ago (it hit that intraday high in mid-August of 2008).
And yes, Orbital did get a big order from NASA for cargo deliveries to the International Space Station — it was indeed for $1.9 billion and they got the contract back in December. That’s a pretty big slice of future business for Orbital, which is relatively small with a market cap of under a billion dollars.
Orbital also looks like they’re in pretty good shape financially — they are profitable, they have no net debt, and they have about $4 a share in net cash. Not bad for a $15 share price, and it makes the forward PE of 15 or so seem perfectly reasonable.
I haven’t studied Orbital very closely in recent years, but I do know that it’s also been a pick of the Rule Breakers folks over at the Motley Fool, and they were also touting it when it hit that July low around $13 after a disappointing earnings report.
There continues to be a push to make NASA more efficient, and one way that many experts and politicians are urging to advance that cause is privatization of space flight — contracting out more and more of the work to companies like Orbital and their many competitors, with hopes that the next generation of space entrepreneurs can do what an entrenched bureaucracy tied to historical accomplishments might not. There’s a good recent article about that there, with another blue ribbon panel recommending more contracting. Probably the startup that gets the most attention is Elon Musk’s SpaceX, which finally got one of its rockets launched recently and is also getting a piece of the ISS cargo contract alongside Orbital (SpaceX is private, up until now their recent successful launch, their specialty had been spending Musk’s money, a specialty shared by Tesla Motors).
And the Wall Street Journal cited this trend just a few days ago — here’s a paragraph from the lead:
“The Obama administration is leaning toward outsourcing major components of its space program, such as ferrying cargo and astronauts to the International Space Station. The scale and nature of sending this type of work to private contractors, unheard of in the history of the National Aeronautics and Space Administration, could help the administration cope with an increasingly dire budget situation and fill crucial gaps in its program.”
If you believe that this privatization and outsourcing of various aspects of the space program will continue, I would agree that a company like Orbital might be a good place to play — huge firms like Boeing have so many things going on that a couple space contracts won’t necessarily cause big moves in the share price; while tiny companies that are aiming for a share of the market often don’t have anywhere near the wherewithal to compete for big contracts, and can live or die on a single NASA decision (and many of them are private, anyway — private space travel is something that appeals to wealthy hobbyist entrepreneurs, but the companies often have trouble living up to the demands of public investors).
So is this a good chance to buy Orbital before the next big wave of space contracts? The Space Shuttle is supposed to be retired in two years, and the next big push is expected to be for some kind of manned space travel to replace it, whether it’s a new space plane or simple a cheaper manned rocket that will help us avoid total dependence on the Russians for travel to the International Space Station and beyond. That seems to provide a decent opportunity for ORB investors here, though of course there are no guarantees, and the long term programs envisioned by NASA often cause great angst when the cost is discussed in the light of day … especially when the urgent need to slash the budget deficit seems likely to hit Congress with a mighty wallop in the next few budget years. I wouldn’t bet the farm on it, but it does seem like an interesting speculation with a company that has been effectively managed, and with the expected long-term trend in space contracting and a portfolio of solid government contracts backing up the share price.