Two stocks for the New Space Age
15th October 2020 |
Seven years and two months ago I decided to pack up and move to the UK.
Moving to the UK wasn’t as straightforward for me as my wife (she is British – it was just “coming home” for her).
As we weren’t married at the time, I had to come over on a working visa, and then after a period of time apply for a spouse visa, and then another one.
This year, around May, I was preparing to apply for British citizenship…
Well that all went “a*** over t**” (as we like to say back in Oz) thanks to the “Rona” and the effective closure of all services that allow one to get a citizenship.
Good news is I’m in no rush, and it doesn’t appear the government is either, to have those services up and running again.
Also, I’m in no danger of getting kicked out. Although, I was having a weird thought about it last night. If for some unbeknown reason I was to be ejected from the UK, I couldn’t return to Australia even if I wanted, because it’s still banning citizens from returning from overseas.
Melbourne airport is closed to me. I strangely came to the conclusion I’d probably end up like that fella that lived in Charles de Gaulle Airport for 18 years stuck in political limbo. It was late, I’d had some wine, these are just the things sometimes I think about.
I could live in an airport to be fair, depending on which one.
Singapore’s Changi Airport? Absolutely! Dubai’s airport? Probably, but only if I had access to the Emirates lounges. There’s a few more I could live in, but forget ones like Heathrow, Birmingham, Gatwick – I do well to spend a couple hours in those, let alone years.
Anyway, I do slightly digress, airports now are barely hosting any passengers, let alone people living in them. And that’s obviously because of the situation the world finds itself in. I think about the fact I can’t go back to Australia a lot.
It worries me. It also is the clearest indication of the stress and strain the global aviation industry finds itself under.
The most obvious casualties of this aviation Armageddon are the airlines such as IAG, easyJet, Ryanair (and the rest). Ryanair interestingly has held up considerably well compared to the others. Airlines are right on top of my watchlist by the way – I have no doubt long term, it’s an industry that will inevitably recover. I think it will also come a lot faster than people can comprehend right now.
Looking at our own buy list, we’ve clearly got some aviation and aerospace exposure through Rolls-Royce Holdings (LSE:RR) and Meggitt Plc (LSE:MGGT). Also in a roundabout way, Velocys ,but that’s kind of a different exposure to what I’m talking about today.
Let’s look in at Rolls and Meggitt.
They’ve both copped a hammering this year. You’d expect no different really. The timing with Meggitt entering our buy list was more unlucky than anything. October last year, no one even spoke of the term “coronavirus” in disparaging terms.
We all just used to call coronavirus the flu, and didn’t realise any different. And that all changed.
Rolls on the other hand, came in after the market rout but not quite before the full market rout on Rolls had finished. Timing better, but not perfect. Still both are in the buy list for good reason, and continue to be there for good reason.
Both are important companies to the future of aviation and aerospace. And both are two stocks that I would consider should be a walk-up start to your long-term portfolio.
While it’s clear both have exposure to the civil aviation markets and this has been the biggest drag on the companies, they both also have exposure to other markets, in particular defence, which I think the market continues to downplay.
But it’s also future aviation and space that I think hasn’t even begun to be factored into the values of these companies in a significant way.
I’ve been deep diving into space over the last couple of weeks, and I’m more certain than ever that as the next few years roll out it is inevitable that commercial and investment opportunities for the space industry will continue to open up.
That’s from a defence and militarisation of space angle from nation states. And it’s also from the angle of launching communications technologies into space and low earth orbit.
I was only just watching an episode of Four Corners, an Australian investigative news programme all about the New Space Age. It was information I already knew, but reaffirmed my view that as the cost to get to space continues to decrease, the acceleration of space technologies will increase at an exponential rate.
This will result in a hockey stick moment where space becomes as much as a second thought to people and industry as aviation travel from country to country is today. That is all going to happen much faster than people anticipate with the huge resources being thrown at the space industry from countries and massive tech companies.
To easily open up the space industry, experienced players in aviation and aerospace will be called upon. Companies like Rolls-Royce and Meggitt will become integral parts of the space industry as they are part of the aviation industry today.
That alone makes them both stocks I think you should have in your portfolio. Obviously a word of warning on Rolls-Royce though – with the rights issue, if you’ve not currently got Rolls-Royce and are looking to add it, you either want to ensure you get your stock so that you’re eligible for the rights issue and then have the extra capital to take up the rights issue; or you wait until that has been done and the stock is trading with all the new shares so that you’re not unnecessarily diluting yourself.
Oh, and for good measure, if you think the aviation industry is going to stay like it is today in the midst of this pandemic, forever, you’re nuts.
Global air travel will come back. We will all forget about this year and coronavirus soon enough. Not even the Spanish flu managed to last more than two years. This isn’t as bad as that.
The bounce-back potential of both Rolls-Royce and Meggitt from 2020 and the current pandemic, is also huge. Factored in with the long-term futures in technology development for aerospace and space industries, I still think they’re both excellent long-term stocks to have and hold.
Regards,
Sam Volkering
Editor, Frontier Tech Investor
