Growth Stocks Crashed This Year, But This Futuristic Theme Is Holding Up
Our theme of Space Stocks has outperformed this year, declining by just about 5% year-to-date, compared to the broader S&P 500, which remains down by 9%. While investors have broadly been reducing their exposure to futuristic themes, as they brace for higher rates and tighter monetary policy, the space theme has held up much better, as many of the listed stocks in the sector are defense and aerospace-focused companies, which are rising on account of the ongoing war between Russia and Ukraine. For perspective, stocks in our theme are up by an average of 11% over the last month, compared to the S&P 500, which remains down by about 7%.
Although the near-term outlook for the theme remains mixed, due to the uncertain nature of the ongoing war and possible interest rate hikes by the Federal Reserve this month, the long-term thesis for the theme also remains intact, in our view. There has been a gradual shift from government-driven space programs toward privately run programs, and this could bode well for the companies in our theme. Moreover, new markets are opening up, ranging from reusable rockets, satellite-based Internet, space tourism, and point-to-point transport around the earth, and this could drive revenue growth for the theme in the long run. Enterprise-backed space programs actually saw much progress through the Covid-19 pandemic, with the likes of SpaceX, Virgin Galactic, and BlueOrigin launching multiple crews and high-profile individuals into space.
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Within our theme, Lockheed Martin (NYSE:LMT) has been the best performer, with its stock up 33% year-to-date in 2022, as the ongoing conflict could prompt governments worldwide to bolster their defense spending. For example, Germany recently announced that it would dramatically bolster its defenses, allocating its armed forces a special one-time fund of about 100 billion euros (about $110 billion). Maxar Technologies (NYSE:MAXR), a company that manufactures satellites and satellite products, has also fared well rising by about 11% year-to-date. On the other side, Virgin Galactic (NYSE:SPCE), a small-cap, pure-play space tourism player, has been the worst performer, with its stock down by almost 45% year-to-date.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
|S&P 500 Return||-4%||-12%||88%|
|Trefis MS Portfolio Return||-5%||-15%||236%|
 Month-to-date and year-to-date as of 3/8/2022
 Cumulative total returns since the end of 2016