Why Now Is the Time for Us to Do Some Homework on SpaceX

While tempting to tap the Portfolio’s shopping list and put some capital to work amid the market’s move lower Thursday, with several unknowns in play, we’re opting to remain on the sidelines for now. Subject to developments in the coming days, we may choose to selectively make some moves, using oversold stock conditions to do so.

What we realize is that while fear and uncertainty are back in the driver’s seat, they aren’t yet at levels that point to a compelling risk-to-reward tradeoff. As we discussed yesterday, key support levels for both the S&P 500 and Nasdaq Composite are at lower levels.

For some, that may make Thursday a rather frustrating day, but we would rather put Portfolio capital to work as some of these known unknowns become known and digested by the market. That includes what comes next between the U.S. and Iran, announcements stemming from the meeting between President Trump and China President Xi Jinping, and upcoming September economic data from ISM, ADP, and the Department of Labor.

Is it possible that we may give up a few dollars across those stocks on our shopping list? Of course, but, in our view, we would rather make higher conviction moves rather than simply saying “we are doing something.” In our effort to teach members how to be better investors, one of the lessons is knowing when to act, when to wait for uncertainty to clear, and when to be patient.

Being patient doesn’t mean we are sitting around twiddling our thumbs, however. Instead, we are assessing newer data, information and signals. For example, comments from McDonald’s (MCD), Stitch Fix (SFIX), and even from Darden Restaurants (DRI) are fostering concerns about consumer spending. We’ve talked quite a bit about inflation pressures and what’s driving them, so we’ll refrain from repeating them here, but we will say that in such an environment we’ll play the long game with our holdings in Costco (COST) and TJX (TJX).

We’ll also continue to collect real world signals. For example, despite the growing concern over the consumer stemming from higher gas and diesel prices, while picking up my son from the airport ahead of our daughter’s wedding this weekend, it was impossible to locate a parking spot at Dulles International Airport. When I mentioned this to Bob Lang, he shared that San Diego International Airport was jumping earlier this week. Anecdotally, that tells us folks are still spending on traveling, and mixed with a differentiated membership business model, we’re looking to pick up more shares of oversold American Express (AXP).

Paccar

Bob gave his technical take today on shares of Paccar (PCAR), and given the focus on diesel prices, the painful move in that holding isn’t all that surprising. But what the less informed are not contemplating is the 2027 EPA mandate, accelerated depreciation under the One Big Beautiful Bill, and the average age of the heavy duty truck market is around 6.3 years per data from ACT Research, on par with the 6.4 figure for 2019, when truck production levels last peaked. There also wasn’t accelerated depreciation back then, and one can make the case that average age is a reason for owners and operators to upgrade to more fuel-efficient models that have close to a 20% reduction in fuel consumption compared to those produced before 2024.

Those factors and the current oversold condition have us waiting in the wings when it comes to PCAR shares. It’s not where the shares are today that we’re thinking about, but where they will be as higher production levels give way to operating leverage and higher EPS.

So that’s some of what we’re doing for the Portfolio. We’re doing something similar with the Bullpen, and we may make some room for new names to scrutinize further.

Why We’re Doing Some Work on SpaceX

With the Bullpen in mind, I’ll share that we’re doing homework on SpaceX (SPCX). I suspect that will get some attention among members, but I caution you that just because we’re doing homework, doesn’t mean the shares will land in the Portfolio, or even the Bullpen anytime soon.

Still, we are more than intrigued by the company’s Starlink business and its potential to disrupt the existing mobile industry. SpaceX is expanding its relationship with NASA and has garnered program wins that should help reduce the segment’s drag. Compute hosting agreements have pushed SpaceX’s total annual compute contract revenue to more than $41 billion. And while the market is focusing on the number of downloads for Meta’s (META) Muse, SpaceX’s Grok Bot has amassed more than 2.2 million global downloads since being released in August.

Some of the questions we’ll be working through are when SpaceX will reach breakeven on both its operating profit and bottom line, what capex levels will likely be for this year and next, how that funding will impact the company’s balance sheet leverage, and its ability to service existing debt.

Typically we do not contemplate newly public companies until they have a few reported quarters under their belt, in part so they move past the firmer forecasts they have at the time of going public. Our other rule of thumb is to get past the 180-day, post-IPO lockup expiration.

Today, 328.4 million SPCX shares are unlocking and between October 9 and December 8, roughly another 2.75 billion will be unlocked. That December 8 day is the 180-day IPO lockup expiration date. Those are not insignificant figures relative to the total outstanding share count, but we also recognize that earlier this week the SPCX weighting in the Nasdaq 100 has been increased to 2.82% from 1.28%. Morningstar has said that as more shares become available, the weighting of SPCX will at least double at upcoming index rebalances.

The usual rebalance date for indexes like those are quarterly in March, June, September and December. That explains the move with the Nasdaq 100 earlier this week, and it also suggests that weighting and the one in Morningstar’s indexes will step up between Friday, December 18 and Monday, December 21. That gives us another reason to roll up our sleeves and dig into the company’s business and prospects.

And with that my friends, I have some pre-wedding things to take care of ahead of Saturday’s ceremony. We’ll have our Weekly Roundup to you tomorrow, and don’t hold it against me if it runs a little shorter than usual.

More Pro Portfolio:

At the time of publication, TheStreet Pro Portfolio was long COST, META, PCAR, and TJX.