Now that Elon Musk’s rocket and satellite company Space technology (SPCX +1.73%) trades publicly, Wall Street is on the hunt for the next best thing: stocks that could go rogue. The most attractive call came from JP Morgan, whose analysts described a possible combination of SpaceX and Tesla (TSLA +0.94%) as “strategically consistent on paper”. That single phrase has reignited a long-held fantasy among investors, and it’s worth understanding what the analyst firm actually means before considering any of these names as a backdoor into SpaceX.
Space technology
Today’s changes
(1.73%) $2.40
Current price
US$141.54
Key data
Market capitalization
US$1.8 trillionMarket capitalization is calculated using only publicly traded shares outstanding. Does not include unquoted, private or non-traded dual class shares. Implied market capitalization may vary.
Daily range
US$140.29 – US$143.21
Range 52 weeks
US$136.78 – US$225.64
Volume
507.7 thousand
Average volume
149.9M
Why JP Morgan sees logic in the merger of Tesla and SpaceX
JP MorganMusk’s reasoning is that Musk’s companies already share engineering talent, artificial intelligence ambitions and a common leadership, so bringing them together could allow him to pursue a single, integrated vision for cars, robots, energy and space. Analysts also noted that the public debut of SpaceX’s blockbuster gives Musk valuable shares to seal the deal, and that his growing voting control at Tesla gives him more leverage to push it forward.
Image source: Getty Images.
However, JP Morgan was cautious, and so was I. He pointed to real obstacles: obtaining regulatory approvals in many countries, especially China, where Tesla makes cars; the awkward gap between Musk’s near-total control of SpaceX and his smaller stake in Tesla; and the likelihood that any deal would look like Tesla’s takeover of SpaceX rather than a merger of equals.
“Consistent on paper” is a far cry from “likely to happen.”
Today’s changes
(0.94%) $3.70
Current price
$398.46
Key data
Market capitalization
$1.5 trillionMarket capitalization is calculated using only publicly traded shares outstanding. Does not include unquoted, private or non-traded dual class shares. Implied market capitalization may vary.
Daily range
$395.27 – $400.70
Range 52 weeks
US$297.82 – US$498.83
Volume
286.5 thousand
Average volume
52.8 million
Gross profit
19.07%
Other projects of the SpaceX association
Tesla isn’t the only name attracting this halo. Deutsche Bank started to illuminate EchoStar (ECHO +2.46%) with a buy rating, viewing it as a cheaper way to own SpaceX. EchoStar owns about $11 billion worth of SpaceX stock that it received for handing over the wireless spectrum, so the bank says you’re essentially buying SpaceX at a discount and dumping EchoStar’s other assets into it. The catch is serious: EchoStar’s pay-TV subsidiary recently filed for bankruptcy, and the stock has tumbled.
Today’s changes
(2.46%) $2.29
Current price
$95.19
Key data
Market capitalization
$27 billionMarket capitalization is calculated using only publicly traded shares outstanding. Does not include unquoted, private or non-traded dual class shares. Implied market capitalization may vary.
Daily range
US$93.70 – US$95.60
Range 52 weeks
US$26.04 – US$147.25
Volume
32.9 thousand
Average volume
8.4M
Gross profit
18.99%
Then there is Charter communications (CHTR +0.43%)which, according to Bloomberg, has held talks with SpaceX about a consumer mobile service that would route some traffic through Charter’s network. This is truly a strategic decision, but so far this is just talk.
Here’s my honest reading. Buying a stock because it’s associated with a popular company is a strategy based on hope rather than fundamentals, and all three companies have fallen this year for their own reasons. A merger that just makes sense on paper, an equity stake tied to bankruptcy, and rumored partnerships are not the same as a solid business. If you like Tesla, EchoStar or Charter, buy them for what they do today and treat any SpaceX connection as a bonus, not a thesis.
JPMorgan Chase is an advertising partner of Motley Fool Money. Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Tesla. The Motley Fool has a disclosure policy.