Two years ago I was so bullish on Tesla that I basically wanted to become “the Tesla Fund.” Tesla was trading around $50 a share. It closed at $563 on March 8.
I am scouring the globe and even the universe to find the next revolutionary industries to get in front of, and I keep coming back to what I call The Space Revolution and The Virtual Reality Revolution.
So here’s what I’ve come up with as the best risk/reward for my hedge fund and perhaps for individual investors as well. I’m calling it “Spacebook,” which means being overweighted in space stocks and Facebook
Let’s start with Facebook. Holy cow, Facebook’s valuation is cheap. The shares trade for 22 times the consensus earnings estimate for the next 12 months among analysts polled by FactSet. This is for a company whose sales are expected to increase 25% in 2021 and 20% in 2022, following 22% in 2020. (You can see the consensus sales estimates for Facebook and other big tech stocks here.)
That valuation is only slightly ahead of a forward price-to-earnings estimate of 21.7 for the S&P 500 Index
For the index, sale per share are expected to increase 9% in 2021 and 7% in 2022, after a 3.5% decline in 2020.
Facebook’s consistently high double-digit revenue growth is a lot for a company that did $86 billion in revenue last year. What’s most exciting about the growth numbers is that they don’t include any of the upside that Facebook is about to achieve in the burgeoning virtual reality market provided by the Oculus platform. As I wrote in January, the VR market is coming, and it’s coming soon. Facebook is going to be one of the biggest winners in that market, if not the biggest.
As I type this about Facebook, I can’t help but think back to two years ago (and 1,000% ago) as I wrote to you about Tesla. I’m getting the same exact feelings about valuations and revolutions.
To be clear, it’s not this current generation of Facebook’s Oculus virtual reality headset that is going to go mainstream, but it’s the next, lighter, even more advanced one and the versions thereafter. Facebook has a critical mass of developers as well as apps and games being created for its platform already. The first version of Oculus was like a late-version iPod.
Now, how many times do I need to talk about the Space Revolution? The technology has gotten advanced and cheap enough that the whole thing is literally taking off. This is a private company’s dream come true. We are starting to see private space companies come public just as I was saying they would be two years ago.
Over the next 20 to 30 years, there are so many applications that can come to fruition. Space factories, space tourism, space hotels, asteroid mining, supersonic transportation, new colonies — the list goes on. If your time horizon is the next two to three years, I don’t know what to tell you. It might not happen in that period.
But if you are like me and thinking about the next 10,000 days, then we have to get in front of this revolution. I started two years ago when I bought Elon Musk’s SpaceX in the private market for my hedge fund and followed up a year and a half ago when we got into Virgin Galactic Holdings
A lot of public technology companies are bubbled up right now, space players included. We are probably paying two to three times what these companies are really worth right now as they come public.
However, we are making venture-capital-like investments in these with the potential to see 50 to 100 times our investment over the next 10 to 20 years. I’m OK paying up a little for that kind of opportunity. If we compare this sector to the bubbled-up electric-vehicle revolution that is already here, I like the risk/reward of the coming Space Revolution much more. The EV market has already had its huge run.
So how do we continue to invest in the Space Revolution? SpaceX is clearly the best company right now. If you’re wealthy enough, with a little work, you can find a way to make a private investment in the company. I’ve done that in my hedge fund.
But if you don’t have hundreds of thousands (if not millions) to throw at SpaceX, I think Rocket Lab
is the best way to invest in the space revolution right now. You can read more about Rocket Lab and Vector Acquisition Corp., the special purpose acquisition company, or SPAC, that is expected to take it public, here.
I have begun to take a position in both the hedge fund and my personal account. It has come down some (like most space stocks and high growth tech over the last week) since my initial report and I have continued to add to the position. Virgin Galactic remains another favorite public space company to invest in. We first got into that name in November 2019 at around $8 per share.
Virgin Galactic, just like the other space companies, is probably a little overvalued at the moment. Especially with no revenue and not being able to get its test flights successfully into orbit. But again, we are looking up to 30 years down the road and this is currently my third-favorite way to invest in the space revolution.
I’m researching four or five other space companies that have recently come public. I’ve also made Facebook one of my largest positions again for the first time in a while.
As always when making an investment, I suggest that you give yourself room to add to the position if it falls. Over the next six months to two years, I think we’ll have the opportunity to buy most small-cap tech stocks at lower prices. On the flipside, I can’t guarantee that those positions will drop, which is why I have begun to build my positions in the space and virtual reality revolutions, and why I will continue to add to them if given the chance at lower prices.
That’s why I am basically becoming “the Spacebook Fund.”
Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.