On October 7, I wrote about Orbital Sciences (NASDAQ: ORB) and its historic cargo mission to the International Space Station (ISS). I described Orbital as the only space exploration pure play on the market, and its successful mission as an important milestone in space investing.
I expressed my long-term bullish outlook on the commercial space industry and pledged to share a few plays in this emerging sector with our readers…
In the four weeks since, ORB has jumped another 10%.
As a man of my word, I’ve compiled a list of five more companies with substantial stake in the commercial space industry — some of which I’m expecting to offer higher returns than Orbital.
Today I will outline these five companies and provide some prospective on their future role in what can accurately be described as an ever-expanding industry.
Practical Space Investments
American Pacific Corp. (NASDAQ: APFC), better known as AMPAC, is a manufacturer of specialty chemicals. The company is composed of several divisions and is primarily focused on four industries. These industries include pharmaceuticals, fire protection, water treatment, and aerospace.
With growing concerns about the environmental impact of hydraulic fracturing across the globe, we have good reason to be bullish on AMPAC for their water treatment services alone.
However, this article is primarily concerned about the company’s role in aerospace.
In the most basic sense, rocket propellant consists of two components: fuel and an oxidizer. In order to burn, fuel needs oxygen — and lots of it. In modern propellants, oxidizers constitute the vast majority of the mixture: between 60% and 90% of total propellant mass.
The leading oxidizing agent for solid propellants is a compound known as ammonium perchlorate (AP). For the last decade and a half, AMPAC has been the sole provider of AP in North America, giving it a domestic monopoly on solid propellants in the United States.
AMPAC’s role in the space industry will rely heavily on the technology used by Orbital Sciences and Elon Musk’s Space X. While Orbital uses a combination of liquid and solid propellants to deliver its Cygnus spacecraft , Space X relies solely on liquid propellant for both its Falcon 9 and Grasshopper rockets.
Recent reports indicate that Space X will not be ready for its next scheduled launch to the ISS in December, and that Orbital Sciences will be taking its place. Orbital’s recent ISS mission was described as nearly flawless, while Space X experienced mission-threatening problems with its thrusters back in March.
If Orbital continues on course and Space X falters, we can expect AMPAC to benefit.
The Liquid Trio
When it comes storage, handling, and total thrust, solid propellants offer a clear advantage over their liquid counterparts.
However, liquid fuels offer a range of benefits that have enticed companies like Space X to adopt liquid oxygen, and motivated NASA to describe liquid hydrogen as the “fuel of choice” for space exploration…
First, solid propellants cause extremely high combustion pressures. In order to deal with those pressures, rockets require massive combustion chambers. These chambers take up space and ultimately reduce the cargo capacity of a rocket.
Liquid alternatives allow for lighter rocket casings and attractive cargo ratios.
Liquid propellants also have the advantage of real-time throttle adjustment. Once ignited, solid propellants will burn until extinguished, while liquid propellants can be throttled, shut down, or restarted.
For these reasons, liquid oxygen and liquid hydrogen are the most commonly used sources of propellant for earth to orbit launches.
When it comes to liquid propellants, there are three plays to consider: Praxair, Inc. (NYSE: PX), Air Products & Chemicals, Inc. (NYSE: APD), and Airgas, Inc. (NYSE: ARG).
All three companies have offered positive returns this year and are trading within positive trend channels, such as the one illustrated below.
Look for a bounce at the rising support lines before taking a position in any of these.
Astrotech Corp. (NASDAQ: ASTC)
Astrotech is one more play in the propellant industry.
Rather than providing propellant materials, Astrotech offers propellant services such as loading, transportation, testing, and logistics.
The company contracts with NASA, the U.S. Department of Defense, various international space agencies, and a slew of commercial customers, including:
- Boeing (NYSE: BA)
- Alliant Techsystems (NYSE: ATK)
- Orbital Sciences (NASDAQ: ORB)
- Lockheed Martin (NYSE: LMT)
- Northrop Grumman (NYSE: NOC)
- General Dynamics (NYSE: GD)
It’s also worth noting that while SpaceX is not a direct customer of Astrotech, the two companies are united through a third party.
As part of a contract awarded by NASA in September, Astrotech will provide facilities and pre-launch services for a Space X Falcon 9 rocket in 2014.
Astrotech has been consistently boosting its bottom line and recently hit profitability with an income of $2.2 million in its most recent quarterly report, up from a net loss of $1.3 million a year earlier.
When these results were realized in mid-October, shares skyrocketed, making Astrotech a quick and easy double-bagger.
Despite this recent jump in entry point, ASTC is still an attractive play after corrections. The company currently has an 18-month backlog of $25.5 million and a strong history of partnerships with just about every major player in the space industry.
Whether it’s SpaceX, Orbital, or major players like Boeing and Lockheed Martin that come out on top, Astrotech has the upside either way.
Turning progress to profits,
Jason Stutman
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