Shareholders of Astra Space (NASDAQ:ASTR) got a reminder last week that space is hard

The company, which went public earlier this year via a merger with a special purpose acquisition company, or SPAC, saw a test launch of its new rocket fall short of expectations after one of the five main engines powering the rocket failed. The stock fell more than 20% on the first day of trading after the incident.

Space has been a hot sector among investors, thanks in part to analyst estimates that it could represent a $1 trillion opportunity by 2040. But as Astra's experience shows, few rocket companies go straight up. There are substantial risks that come with space operations, and it is possible that not all of the public companies dabbling in space today will reach their destination.

For investors willing to brave the unknown and explore this new frontier, here's why three Motley Fool contributors believe L3 Harris (NYSE:LHX)Virgin Galactic Holdings (NYSE:SPCE), and Rocket Labs USA (NASDAQ:RKLB) stand to benefit from the modern-day space race.

A rocket blasts off at sunrise.

Image source: Getty Images.

Go with a proven entity with lots of ways to win

Lou Whiteman (L3 Harris): L3 Harris isn't as glamorous a choice as some of the newer companies focused on space. But it does offer strong exposure to the cosmos with a lot less risk of losing everything.

L3 Harris is the nation's newest defense prime contractor, formed by the 2019 merger of Harris and L3 Technologies. Both of those companies had a focus on electronics and communications, and together they have a formidable portfolio of space offerings. The company doesn't make the powerful rockets needed to leave Earth's atmosphere, but it does make a range of antennas, transmitters, power modules, and other electronics that go into satellites.

The company's space and airborne division, which includes not just extraterrestrial work but also components for warplanes, accounted for about 27% of total revenue in the first half of 2021. In the most recent quarter, L3 Harris space grew revenue by 10%, capturing classified awards totaling more than $300 million. CEO Chris Kubasik said on the company's second-quarter earnings call that the company has a three-year space pipeline of "nearly $20 billion."

In L3 Harris, investors get a growing space business supported by a wide range of defense electronics, communications, and avionics assets. The company pays a 1.75% dividend yield, and management is planning to spend more than $3 billion on share buybacks in the quarters to come.

L3 Harris appears well positioned to gain altitude from here. 

The future of space is tourism

Rich Duprey (Virgin Galactic): Going into space is for risk-takers and the adventurous, and though investors need to be much more circumspect with the businesses they put their money in, I still like Virgin Galactic precisely for its derring-do.

I'll say up front that if the allegations of Virgin purposefully sweeping aside safety considerations simply to beat some arbitrary deadline are true, then that's unacceptable. Particularly when you're going into space, the risks are already great, and ignoring safety protocols can only exacerbate them with potentially devastating impact

With that said, I think the doubts expressed about Virgin are weighing on its stock, and that gives investors an opportunity to buy in just as it is poised to begin commercial operations.

Later this month, Virgin's VSS Unity will undertake its first commercial, human-tended research mission by carrying three paying crew members from the Italian Air Force and the National Research Council to evaluate the effects of the transition from gravity to microgravity on the human body.

Virgin Galactic's Unity spacecraft rockets higher.

Virgin Galactic's Unity spacecraft. Image source: Virgin Galactic.

After the mission, Virgin will upgrade the Eve mothership and then begin commercial service late next year. It has already signed up 600 people paying $250,000 or more apiece for the opportunity to participate in the launch of the space tourism industry.

While missions for NASA and other commercial enterprises have been the base motivation behind private space travel, it is the tourism aspect of it that sparks the imagination and brings rocketry down to the human level. Virgin Galactic is the vehicle through which investors can participate in that.

Analysts eye some $120 billion in potential future demand for the rocketeer that could turn into some $1.7 billion in revenue by 2030 for Virgin, though it admittedly has to get over some high hurdles to reach altitude. Some analysts worry about the Federal Aviation Administration impeding its flight path, and my colleague Rich Smith, who is pitching a different space stock today, has doubts Virgin can actually realize such sky-high estimates.

It's that risk-taking and adventurous nature of founder Richard Branson that suggests to me this is more than possible. And while it might require a bit of a leap of faith to believe he can see it through, I believe Virgin has the potential to grow into its valuation.

This company is the leader in the small space race

Rich Smith (Rocket Lab): My favorite "new space" stock is Rocket lab, a tiny rocket company and recent SPAC IPO.

"New" or not, Rocket Lab has been putting satellites into orbit for quite a while now. In fact, since May 2017, it has launched 21 separate, successful missions, and put more than 100 satellites into orbit for commercial customers and U.S. government agencies including NASA and the U.S. Space Force.    

And tiny or not, Rocket Lab is big enough that it recently won a NASA contract to send two spacecraft not just into Earth orbit, but all the way to Mars. In 2024, two Rocket Lab Photon spacecraft will travel to the Red Planet to conduct environmental surveys into the effects of solar wind on the Martian atmosphere. The company even has plans to send a spacecraft to Venus on its own dime.  

I admit, flight manifests and future plans notwithstanding, the stock remains something of an unknown quantity. Most financial data providers don't even have an accurate read on the company's market capitalization, much less estimates for future sales and profits.

But with a strong record of success, an established customer base for its Electron rocket, and plans underway to build an even bigger rocket (the Neutron, expected to have 27 times the payload capacity of the Electron), at the very least, I can say that Rocket Lab looks to be moving in the right direction: pointy end up.

 

 
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.