Is Rocket Lab USA Inc. (NASDAQ:RKLB) the Next Big Bet for Hedge Funds in Small-Cap Manufacturing?

We recently released a compilation of the 15 Little-Known Manufacturing Companies That Hedge Funds Are Investing In In this piece, we will examine how Rocket Lab USA Inc. (NASDAQ:RKLB) measures up against other small-cap manufacturing companies.

On February 26, Liz Ann Sonders, who serves as the chief investment strategist at Charles Schwab, appeared on CNBC’s 'Squawk on the Street' to talk about potential manufacturing slowdowns caused by persistent policy uncertainties. According to her observations, the prevailing mood in the markets is dominated by apprehensions regarding economic expansion rather than inflationary pressures. During this discussion, she pointed out several softening metrics like dips in consumer confidence levels, weaker retail sales numbers, and lower service sector Purchasing Managers' Index (PMI) readings. Additionally, she highlighted that heightened political unpredictability has dampened businesses' eagerness to invest heavily in significant equipment purchases, leading them to scale back their expenditure strategies. She further clarified that throughout the last twelve months, financial market interest rates have fluctuated based mainly on shifts in inflation reports versus signs of economic progress, whether these were upward or downward trends. Currently, though, Ms. Sonders believes that falling bond yields can be attributed predominantly to fears concerning an impending downturn in economic activity instead of hopes for decreased price hikes. Consequently, this shift toward pessimism among traders has steered investments towards industries perceived as safer bets within today’s volatile environment.

Recent PMI data has shown services activity starting to decline, but manufacturing has picked up. This could result in a potential positive convergence between the two sectors. But Sonders thinks that this improvement in manufacturing could be at risk due to the policy-related uncertainty still ongoing. Therefore, many companies within the manufacturing sector are now increasingly cautious about future investments and expansion. Sonders also pointed out that while there have been discussions about significant deficit reductions, originally targeting $2 trillion, the actual figures are much smaller. The current visible cuts amount to less than $10 billion. She argued that it is premature to focus on these spending cuts alone, as the effects of tariffs, immigration, and deportation policies, and regulatory changes are collectively putting downward pressure on growth estimates and upward pressure on inflation expectations. She added that while tax policy changes are being discussed, these are more likely to affect the year-end outlook rather than the near-term trajectory.

Our Methodology

Initially, we examined financial news articles along with data from the iShares U.S. Manufacturing ETF, the Vanguard Industrials ETF, and Insider Monkey’s Q4 2024 report on hedge fund holdings to assemble a roster of smaller-sized manufacturing equities that were attracting investment attention from these funds. Herein, "small-cap" refers to companies whose stock value ranges between $10 billion and $20 billion, based on figures up until April 25th. From this initial compilation, we pinpointed the leading fifteen firms and organized them according to how many different hedge funds had positions in each company. If multiple stocks shared identical levels of interest among investors, their ranking was determined by comparing their respective market capitalizations.

Why do we pay attention to the stocks that hedge funds accumulate? It's straightforward: our analysis indicates that mimicking the leading stock choices from premier hedge funds allows us to exceed market performance. Each quarter, our monthly bulletin chooses 14 small-cap and large-cap equities, delivering a return of 373.4% since May 2014, surpassing its reference index by 218 percentage points. s ee more details here ).

A launching platform situated on a verdant slope, with billowing smoke filling the heavens following a triumphant journey into outer space.

Rocket Lab USA Inc. (NASDAQ: RKLB )

Market Capitalization as of April 25: $10.15 billion

Number of Hedge Fund Holders: 37

Rocket Lab USA Inc. (NASDAQ:RKLB) delivers global space system solutions. The company offers launch services, spacecraft design expertise, spacecraft parts, spacecraft production, along with various on-orbit management options for satellites and other spacecraft. Additionally, they engineer and build both small-scale and mid-sized rockets.

In March, Rocket Lab was selected for Phase 3, Lane 1 of the National Security Space Launch initiative by the U.S. Space Force. The company stands to potentially secure contracts totaling up to $5.6 billion from the Space Force. This selection highlights Rocket Lab's capability to deploy the type of satellites that governmental agencies intend to send into orbit within the coming five years. Consequently, on April 8th, Wells Fargo maintained their 'Equal Weight' rating on the stock but revised their price target downward from $21 to $18.

In the fourth quarter of 2024, the Space Systems division generated revenues totaling $90 million, marking an approximate sequential increase of 7%. Over the entire year of 2024, this same segment reported earnings of $310.8 million, reflecting a substantial 80% rise compared to the previous year. Rocket Lab USA, Inc. (NASDAQ:RKLB), holds numerous spacecraft at various phases of development, projecting more than four times their current count either launched into orbit or accomplished their missions by late summer 2025.

Overall, RKLB ranks 9th On our roster of small-cap manufacturing equities favored by hedge funds, we recognize the expansion prospects of RKLB. However, our confidence leans towards the notion that artificial intelligence stocks present significant opportunities for substantial gains with quicker turnaround times. One particular AI equity has surged since the start of 2025, whereas many well-known AI shares have dropped approximately 25%. Should you be seeking an AI stock deemed more appealing than RKLB yet trading below five times its earnings, explore our detailed analysis provided in our report. cheapest AI stock .

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Disclosure: None. This article is originally published at Insider Monkey .