Investing in Special Purpose Acquisition Companies, which are also known as SPACs, is a lot different than buying traditional equities. Since SPACs are shell companies set up by a group of investors with the sole purpose of finding a company to acquire and bring public, you are essentially betting on the management team’s success. That means when you buy a SPAC pre-merger, you aren’t getting a company that sells products or generates revenue. You never know what kind of company will ultimately be acquired, which means that there is a broad spectrum of outcomes that can occur.
SPACs had a banner year in 2020 but have cooled off recently thanks to a change in sentiment and a correction that left some investors reeling. Look no further than a stock like Clover Health (NASDAQ:CLOV), which is down 44% year-to-date and a good example of a post-merger SPAC that didn’t exactly work out the way many investors planned. With that said, investing in the right SPAC can potentially provide huge gains for your portfolio if you are willing to accept the risk. Given the volatile nature of these types of investments, buying SPAC stocks with a strong management team backing them or an intriguing acquisition target in their sights is critical. If you are intrigued with these “blank check companies”, keep reading on to learn about 3 SPAC stocks that could be huge winners below.
Churchill Capital Corp IV (NYSE:CCIV)
This SPAC has taken investors on a wild ride in 2021, but could eventually become a big winner, particularly since a merger target has already been announced. Churchill Capital Corp IV plans to bring Electric Vehicle start-up Lucid Motors public and will trade under the ticker “LCID” after the deal closes. Lucid Motors has often been compared to Tesla, which makes sense given the company’s CEO Peter Rawlinson was the former chief engineer for Tesla’s Model S vehicles.
In February, this stock surged up 157% to a high of $64.86 on speculation that Lucid Motors was the target company. However, the stock has pulled back dramatically since then and dropped over 50% from the February high. While this type of price action might scare some investors off, there’s enough to like about Lucid Motors and the company’s growth potential to warrant consideration at current price levels. We know the huge opportunity that EV companies have given the worldwide focus on sustainable energy, and the fact that Lucid’s vehicles feature a unique battery technology could make this one a huge winner. Keep an eye on this SPAC going forward, especially when the merger closes and when Lucid Motors debuts its luxury Air sedan later this year.
GS Acquisition Holdings Corp II (NYSE:GSAH)
One of the big issues with buying SPACs is that when they are pre-merger, the stock price will typically move solely on rumors. That’s exactly the case with this SPAC, which is a blank check company that was created by leading global investment banking firm Goldman Sachs. Back in February, the stock hit a high of $16.66 on a rumor that the company was close to making an acquisition. However, the merger has yet to take place and the stock price has retreated significantly.
While we don’t know which company is going into GS Acquisition Holdings Corp II as of yet, the company has stated it is focused on “Diversified Industrial, Healthcare, Technology, Media and Telecom, and Alternatives Asset Management sectors”. That’s a pretty broad array of acquisition targets, but SPAC investors should be intrigued with the fact that Goldman Sachs is behind this one. The company’s management team includes several former executives from Goldman Sachs, which should give investors extra confidence that a great company will be acquired at some point. The stock price is at an attractive entry point at this time too, which is very important when buying SPACs.
Fintech Acquisition Corp V (NASDAQ:FTCV)
If you are looking for another SPAC that has announced a very intriguing company that it will be bringing public, Betsy Cohen’s Fintech Acquisition Corp V fits the bill. The stock rallied over 42% during Tuesday’s trading session after the company announced it will be bringing online investment platform eToro public. eToro expects a valuation of $10.4 billion and is a direct rival of Robinhood, although at this time eToro does not offer stock trading in the United States.
There are several noteworthy things about eToro. First, the company is benefitting from the boom in commission-free trading and has amassed a user base of over 20 million, including 1.2 million new registered users last January. In 2020, the company reported gross revenues of $605 million, which represented a 147% year-over-year increase. eToro also is one of the only investment platforms that allow its customers to hold both traditional assets like stocks and bonds along with newer assets such as cryptocurrency. Finally, it’s worth mentioning that eToro has received approval for a broker-dealer license and could launch in the U.S. market later this year.
Before you consider Fintech Acquisition Corp. V, you'll want to hear this.
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