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1957 2.0 (Cestrian Stocks Bulletin #81)

Cestrian Stocks Bulletin
1957 2.0 (Cestrian Stocks Bulletin #81)
By Cestrian Capital Research, Inc • Issue #81 • View online
That Mark Twain quote about history rhyming.

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note’s date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
Get Ahead Of The Game
Earnings season started in earnest for us today. Banks and tanks go first as you know, your honest-to-goodness Boomer names, proper companies. Buybacks. Dividends. Real companies like they used to make back in the day. Not like your soft Gen Z underbelly of tech stocks and the like. (Disclosure, long a whole bunch of money-printing soft-bellied Gen Z names).
We don’t cover banks, but in our space stock work we do cover tanks - your Northrop Grummans ($NOC), Lockheed Martins ($LMT) and so on. And the first of our names, Iridium Communications ($IRDM), reported today. It was a good quarter.
Tanks? Next-generation defense, you say? What is all this? Space is fun now, right?
Er, well, yes, space for good and all that, Capt. Kirk all emotional about plastic in the oceans upon landing, Jeff Bezos pretending to emote. (“Jeff”, says Inner Jeff. “JEFF. Look sad about the oceans.”). Probably a good thing. The whole oops-let’s-try-not-to-destroy-the-Earth-quite-as-fast-as-we-might thing arose from folks viewing the Earth from space in the 1970s, so, maybe a few less bottles end up in dolphins this time around too. But that’s not why space is an exciting investment opportunity. Space is an exciting investment opportunity because, well, people are starting to SPEND BIG on space stuff.
Why? Because of the dolphins?
Er, no.
It’s because it’s 1957 2.0.
Oops - They Did It Again
Oops - They Did It Again
The catalyst for the first Space Race was the nagging sense amongst the members of the US political and military-industrial complex communities that the Soviet Union had gotten ahead in next-generation flight hardware. Today the notion that a win was a ball of metal circling the Earth sending a ping every now and then seems laughable. But then - it was taken as a precursor of future military might. This perception was right, and wrong. The Soviet Union was ahead in many space matters, but the US assessed correctly that it could out-organize and out-spend the USSR in order to take and sustain the lead. With the help of a group of folks extracted from Germany, none of whom were Nazis, they couldn’t have been Nazis because, you know, they said they weren’t Nazis, the US set about developing superior rocketry, culminating in the iconic Saturn V. With the combination of truly unimaginable amounts of money thrown at the Mercury-Gemini-Apollo capsule programs, and then the untimely death of the Soviet Union’s chief rocket designer (both the US and the USSR relied on individual magicians for quite some time in matters of the nozzle), the US pulled ahead and then cemented its lead with the Moon landings. The financial collapse of the USSR in the 1990s ended the Space Race once and for all. Cue books called stuff like The End of History and blah.
Er, until now.
This time, not any USSR successor states, instead, China. Yikes.
For some years, in addition to those lily-livered millennial-loving tech stocks we’re usually droning on about, we’ve covered space and defense stocks and have proclaimed - space is defense, and defense is space. We’ve enjoyed some great wins in our research services as a result, not least calling the sale of Aerojet Rocketdyne (AJRD) which was ultimately picked up by Lockheed Martin (LMT). And now? Now it’s getting serious.
In 1957 the USSR circled the Earth with the Sputnik satellite and properly put the wind up the US government. In 2021, China reportedly circled the Earth with a hypersonic glide body capable of multiple warhead deployment, which has reportedly surprised the US government. (We don’t think it comes as a surprise. Most folks in the space-defense community have been of the view that China has been ahead in hypersonics for some time).
There are two possible US policy responses to this kind of public catalyst. One, the US decides it is happy to slowly cede global strategic dominance to China, a little faster than anyone expected. Could happen. Or, two, the US decides it had better up its game. And spend some more money on catching up and overtaking China. This in our view is a lot more likely a response.
China will take more to beat than the USSR. The country is rich, organized and very, very focused on gaining the global #1 position in matters defense. It has a President very focused on demonstrating regional military superiority and securing regional territorial wins. Whilst it is unlikely in our view that China lobs warheads at the US anytime soon, the perception that it might or even could is likely enough to spur a US military-industrial complex reboot because it’s not a good look amongst the US electorate. In other words, it’s 1957 all over again.
We think this will lead to a slow opening of the spigot of spending with the usual suspects of prime contractors, plus some other names that may surprise. L3Harris ($LHX) very much has designs on securing a position as a key prime in space business; Maxar Technologies ($MAXR) is likely to become increasingly important as a provider of high resolution reconnaissance data; and newer players such as RocketLab ($RKLB) will continue in our view to win business from government clients, business which will likely be increasingly strategic in nature. Under-the-radar-pun-intended-names such as Spire Global ($SPIR) will become much better known. And perhaps one day the Space-Daddy Of Them All, SpaceX, will grace the public markets. We can only imagine the hoopla. (We will be buying that IPO, we can assure you).
We run a very low cost space stock research service, Cestrian Space Select. It’s a real money service insofar as we eat our own cooking. If we say the stock’s a Buy, we’re buying it. Neutral, we’re doing nothing with it (holding if we own it already, not buying if we don’t). Sell, we’re selling it. Simples. The service is low cost because it pulls content from our premium service which includes space and all that technology mumbo-jumbo. Doubtless we’ll hit you up on that one another time. But for now we want to say: if you have any interest in investing in space, just $299/year or $39/month gets you membership of Space Select. On 1 November prices go up to $399/yr or $49/month for new members. Sign up now, keep your low price for as long as you are a member. We never raise prices for existing members.
Here’s a couple kind words from our subscribers. We have a so-far undisturbed perfect 5.0 star rating.
Actual subscribers!  That pay us!!
Actual subscribers! That pay us!!
Cestrian Capital Research, Inc - 19 October 2021.
DISCLOSURE - Cestrian Capital Research, Inc staff personal accounts hold long positions in IRDM, MAXR, LMT, NOC, LHX, RKLB, SPIR.
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