Markets

The Main Event: Out-Of-This-World Stock Gains?

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What happened

Move over Neil Armstrong and Buzz Aldrin! There’s a new astronaut prototype… and it could be a game changer for the future of space travel.

Last week, billionaire Sir Richard Branson became the first person to take a commercial space flight on his very own spacecraft.

Branson is the first, but will not be the last of this new breed of spacefaring billionaires. Former Amazon CEO Jeff Bezos is blasting off in his Blue Origin rocket next week and Musk’s SpaceX aims to conduct the first paid commercial flight later this year.

Think they’re onto something?

Understandably, the financial media has zeroed in on the, well… number of zeroes in the net worths of Branson, Musk, and Bezos.

It’s a battle of the billionaires to reach outer space while much of the world continues battling through a once-in-a-century pandemic. That’s a storyline built to sell (digital) newspapers.

Yet, this week we’re focusing on the bigger picture beyond the media’s framing of the new space race as a vanity project for billionaires.

Here’s the deal: three of the richest self-made tycoons are not competing for space supremacy just to blow their hard-earned money. (That’s what jet planes, islands, and tigers on a gold leash are for!)Instead, they understand the tremendous financial opportunity from the new space race and are racing to the front of the line in an industry that

• is currently a $350 billion market
• is expected to nearly triple to $1 trillion by 2040
• and has opportunities across exploration, tourism, satellite Internet, and much more.

And on top of those eye-popping numbers, consider that future technological breakthroughs and increased spending from the U.S. Space Force to counter a recent space partnership between Russia and rising space superpower China could put even more momentum behind this next-generation space race.

Bottom line

For the foreseeable future, investing in space will present asymmetrical risk and return opportunities.

That is to say, while it’s virtually certain some space companies will go out of business, the industry’s size and growth should provide winners capable of life-changing returns.

With that risk/return profile, you can understand why billionaires like Jeff Bezos are investing heavily in space exploration. Bezos understands the potential, once noting “given a 10% chance of a 100 times payoff, you should take that bet every time.”

Growth investors simply cannot ignore new developments in this industry. Sure, billionaires are interested in space for personal reasons (such as Musk’s desire to colonize Mars). But the bigger picture is that the new space race could provide out-of-this-world returns. (Hope you’re not sick of my space puns yet because I’ve got more coming!)

So if you’re not sure where to get started, this week we’re featuring stocks for the new space race. While many of the most exciting space companies (such as SpaceX and Blue Origin) remain private, there are plenty of ways to get a cut of this booming industry.

Three Reads...3 Numbers

In Case You Missed It: 50 Things I’ve Learned About Money

CNBC / Grant Sabatier

From 1 million words down to the most powerful 500

Millennial Money operates under a simple mission: to help you make as much money in as little time as possible so you can live the life you want.

In short… we want to help you achieve true financial freedom.

Grant Sabatier founded Millennial Money six years ago, and since then he’s had a lot to say about financial freedom. That includes one million words written, a best-selling book, and over 1,000 media and podcast interviews.

Yet, the best perspectives on money don’t need to be complicated.So this week Grant distilled the past six years of his life into “50 Things I’ve Learned About Money.”

We emailed all Millennial Money subscribers Grant’s “50 Things I’ve Learned About Money” earlier this week, but in case you missed it, we wanted to make sure you gave it a quick read.

It takes just a couple minutes, but will give you years worth of knowledge on money distilled down to its purest form and the perspective on how it impacts your life!

On the Move: Didi Global (DIDI) 🚗📱

The move

Up 11% on Tuesday.

The reason

Chinese ridesharing company Didi Global jumped 11% on Tuesday. Despite the daily reprieve, shares remain under pressure and continue to trade below the $14 IPO reference price during last month’s public debut.

Last week we covered Didi’s situation in more detail. The initial exuberance American investors had to invest in “the Uber of China” quickly wore off when the Cyberspace Administration of China pulled Didi’s app off major app stores. Later reporting revealed the government pressured Didi to delay its IPO and took steps to punish the company after they went ahead with the listing.

The bigger story is that China has been flexing its regulatory muscle and increasingly putting its tech companies in the crosshairs. Last year the government halted Jack Ma’s Ant Group from going public, then followed that up by issuing a massive $2.8 billion fine against Alibaba, the company Ma founded and of which he still owns 8%.

American technology companies are familiar with China’s harsh regulation. Facebook and Alphabet’s Google are not allowed in the country. Even companies like Nike, Apple, and Disney that are succeeding do so by remaining vigilant about not angering the Chinese government.

This week ARK Investment Management’s Cathie Wood (more on her later) sold off her Chinese tech stocks, noting a “valuation reset.” Investors in Chinese companies and U.S. companies that derive a significant percentage of sales in China should consider increased regulation and government interference to be a significant threat in the years to come.

In the News: Affirm Holdings (AFRM) 💳🤦‍♂

The news

Shares of buy now, pay later (BNPL) fintech company Affirm Holdings sank 10% on Monday due to a report that Apple was in the initial stages of bringing a BNPL functionality to its Apple Pay service.

The stock angle

Affirm shares were understandably under pressure due to the tremendous reach of Apple Pay and the company’s significant resources. However, Apple’s entrance might not be as negative for Affirm as initially advertised.

Apple’s rumored BNPL program exists only for transactions conducted on its Apple Pay platform while Affirm chooses to partner with merchants and embed their solution on their website.

The play

The BNPL market is red hot. Our friends over at the Ascent surveyed 2,000 Americans about BNPL habits and found most were familiar and used the payment type. Even better for increased future adoption is the demographic makeup of BNPL users: in the 18-44 age range, more than 60% of respondents have used a BNPL service with overall growth of 48%.

BNPL will not be a winner-take-all market. Consider Apple’s entrance affirmation (pun intended) that Affirm has further room for growth.

(Also, if you’re interested in this market, make sure to give the full survey from the Ascent a read. BNPL could be a massive market opportunity across the next decade!)

Quiz Time: Top States For Business

CNBC recently released its annual “Top States for Business” for 2021. Which state finished No. 1 in CNBC’s survey?

1. CA
2. VA
3. TX
4. FL
5. NY

Stock of the week: ARK Space Exploration ETF (ARKX)

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The ETF: ARK Space Exploration & Innovation ETF (BATS: ARKX)
Price: $20.29
The reason: Diversified exposure to the space industry

Here’s a first: a “stock of the week” that’s actually an ETF!

We know the new space economy is slated to make early investors major bank. The overall industry is expected to nearly triple in the next 20 years and those expectations could be significantly understated when considering the effects of technological breakthroughs and patent improvements that will be utilized across multiple industries.

Think about it: it’s no coincidence that three of the richest and most forward-thinking people in the world are spending billions to win the space race!

However, like any new industry, there are also going to be quite a few high-profile failures. You don’t have to look back far to see this boom-and-bust cycle in action: last year EV stocks were on fire; now many are on the verge of collapse.

For that reason, the best way to take advantage of the space race for many investors is to buy a diversified portfolio of companies overseen by a proficient investment management team.

Enter ARK’s Space Exploration and Innovation ETF, or ARKX. While some shine has come off of ARK’s CEO Cathie Wood as growth stocks have pulled back, Wood is still one of the most forward-thinking investors on Wall Street and has the returns to prove it.

Crazy stat: Wood’s flagship ARK Innovation ETF has advanced 150% in the last three years, nearly tripling the S&P 500’s return during that period.

In addition to the direct aerospace companies, ARK’s Space Exploration and Innovation ETF includes many of the critical technology companies slated to win the new space race as suppliers or as beneficiaries of new technologies whether Bezos, Branson, or Musk’s name is on the rocket. The ETF’s largest holding is an under-the-radar geospatial and data analytics company called Trimble, and the fund has many downstream aerospace manufacturers and equipment makers.

As an actively managed ETF, holdings can change provided any new developments occur. Therefore, ARK Space Exploration is well situated to take advantage of any shifts in this nascent industry. And with $627 million in net assets, it can shape the space race through its role as a capital provider.

As with all ETFs, ARKX comes with downsides you won’t get with stocks. The biggest is the management fees. Currently ARK’s Space Exploration ETF charges 0.75% per year, which is significantly higher than many index-based ETFs but in line with actively managed funds.

Additionally, ARK eschews the diversified approach many fund managers use and often takes large positions in single stocks. Even now the company has 10% of its net assets into its leading stock. While this has served Wood and company well for the last few years, it could hurt future returns even if the overall industry grows.

However, if you’re looking for an ETF with broad exposure to the space industry that’s run by one of the most successful investors in the last five years, there’s no better stock than ARK’s Space Exploration and Innovation Fund. Investors looking for a diversified approach should consider this fund.

Want more details on CrowdStrike and why it's a leader in the security space? Simply click on the link below to see if CrowdStrike deserves a spot in your portfolio!

Want more details on the ARK Space Exploration ETF?

• From The Motley Fool, discover two stocks ARK loves that could blast off in the years to come.
• 5 High-Upside Space Stocks from Millennial Money

ANSWER: B: VA. After being named in 2019 (the award was paused last year) Virginia can brag about being the only consecutive winner. We agree with CNBC, but we might be slightly biased considering The Motley Fool’s Alexandria, VA headquarters.

*Based on $299/year list price. Introductory promotion for new members only.