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Why Space Stocks Are Rocketing Higher Today

By Lou Whiteman - Jan 14, 2021 at 9:49AM

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Ark Invest's Cathie Wood is turning her attention to the skies.

What happened

One of the hottest names in investing is launching an exchange-traded fund (ETF) focused on space, and that has some of its likely holdings soaring on Thursday morning.

Shares of Stable Road Acquisition ( SRAC ) are up 26% in pre-market trading, while shares of New Providence Acquisition ( NPA ) are up more than 19% and shares of both Virgin Galactic Holdings ( SPCE -1.54% ) and Maxar Technologies ( MAXR -2.58% ) climbed more than 15% in the premarket.

So what

Few investment firms had a better 2020 than Cathie Wood's Ark Invest, with its flagship ARK Innovation ( ARKK -1.15% ) fund returning 170% last year and growing assets under management to $17 billion. Investors tend to focus on what is hot, and so Wood is getting a lot of attention right now.

Late Wednesday, Ark Invest filed to operate "Space Exploration ETF" under the ticker ARKX. Space is a red-hot area right now, attracting significant investor interest, and on Thursday investors piled into the stocks most likely to be included in the ETF.

View of a satellite orbiting Earth from space.

Image source: Getty Images.

Virgin Galactic is a space tourism company that hopes to begin service this year, ferrying paying customers beyond Earth's atmosphere for $250,000 apiece. Maxar, meanwhile, is a maker of space hardware and a provider of satellite-based Earth imaging and data.

Stable Road is a special purpose acquisition company, or SPAC, set to merge with Momentus, which is building spacecraft capable of moving satellites and space debris in orbit. New Providence Acquisition is also a SPAC, set to merge with space-based communications vendor AST SpaceMobile.

One of the challenges of a space ETF, and a likely reason these stocks are moving, is there are relatively few public companies in the space niche. Ark Invest's Innovation fund is strongly associated with Elon Musk's Tesla, but his space company, SpaceX, is not currently public.

Other potential entries into the ETF include a wide range of defense contractors including Northrop Grumman ( NOC -2.13% ), Lockheed Martin ( LMT -2.32% ), Leidos Holdings ( LDOS -2.92% ), and L3Harris Technologies ( LHX -2.61% ).

Now what

Space, though exciting, is hard to get right. Even the best operators experience setbacks, and some seemingly promising technologies and companies will fail to reach orbit.

Given the high risk but potential reward, an ETF strategy allowing an investor to buy a stake in a number of companies instead of putting funds into just one stock could make a lot of sense. And given the likely popularity of the Ark space ETF, it seems likely that new attention, and new funds, will flow into the companies in its basket.

These are exciting times for space investors. Just be sure to understand the risks and keep space to a small part of a well-diversified portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Maxar Technologies Stock Quote
Maxar Technologies
MAXR
$27.53 (-2.58%) $0.73
Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
LMT
$333.32 (-2.32%) $-7.91
Northrop Grumman Corporation Stock Quote
Northrop Grumman Corporation
NOC
$348.80 (-2.13%) $-7.59
L3Harris Technologies, Inc. Stock Quote
L3Harris Technologies, Inc.
LHX
$209.08 (-2.61%) $-5.60
Leidos Holdings, Inc. Stock Quote
Leidos Holdings, Inc.
LDOS
$87.91 (-2.92%) $-2.64
ARK ETF Trust - ARK Innovation ETF Stock Quote
ARK ETF Trust - ARK Innovation ETF
ARKK
$105.69 (-1.15%) $-1.23
Virgin Galactic Holdings, Inc. Stock Quote
Virgin Galactic Holdings, Inc.
SPCE
$16.00 (-1.54%) $0.25
Stable Road Acquisition Corp. Stock Quote
Stable Road Acquisition Corp.
SRAC
New Providence Acquisition Corp. Stock Quote
New Providence Acquisition Corp.
NPA

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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