They used to be shunned. Now, on any given day it seems Wall Street can’t get enough of them. And I’m not discussing blue-chips or large-cap tech stocks. The reference is directed at recent “special purpose acquisition companies” or SPACs. And if investors are still turning a blind eye or aren’t familiar with these stocks to buy, they might be missing out on the next big thing.
Let me explain.
The market has been on fire in recent months. Specifically, the likes of Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA) and Amazon (NASDAQ:AMZN) are up double and even triple digits on the year and setting new record highs almost daily. It’s crazy, right? Blame it on the Federal Reserve. But they’re not alone and it’s not the only reason either.
Other companies such as Zoom Video (NASDAQ:ZM), Teladoc (NYSE:TDOC) or Peloton (NASDAQ:PTON) have also seen their businesses boom in today’s more socially distanced novel-coronavirus-based work, life and play environment. Those stocks are also sporting big-time returns and even larger valuations. The combination ensures they’ll be on the radars of investors trying to keep up with the Jones’ for some time to come.
However, there is another group of stocks to buy — consisting of SPACs — that is making unprecedented inroads with investors too. This group includes:
SPACs have seemingly crashed onto the scene overnight. The reality is they’re far from new. But a handful of high profile business acquisitions in popular industries and/or dearly held themes by investment firms, followed with reduced paperwork and less onerous listing requirements have pushed SPACs into the spotlight as IPO alternatives. At the end of the day, the merged company is a new stock for investors to buy, sell and, on occasion, avoid altogether. Right now, let’s take a look at above group of SPACs, which are setting up as stocks to buy for tomorrow’s investors.
SPAC Stocks to Buy: DraftKings (DKNG)
Source: Charts by TradingView
In the booming trend of online sports betting, DraftKings stock is a hot property. Between the company’s hugely popular Daily Fantasy Sports leagues and NFL partnership, DraftKings’ opportunities are enormous as states look to legalize sports betting and put a little something in Uncle Sam’s coffers.
DraftKings’ capitalization of more than $12 billion and nosebleed price multiple may seem a certain recipe for a knockdown or two. And it has already happened over the past month. DraftKings’ shares retraced a full 50% of its recent rally to all-time-highs. But as with any company in an advantaged spot inside an emerging market, shares are also poised to grow beyond today’s fears.
Technically, this week’s bullish bottoming candlestick in DraftKings is hinting strongly that those betting on red have left the premises.
It’s worth going long in this stock if shares find modest follow-through next week to confirm the corrective low. Given the stock’s volatility, I’d also advice using a limited risk spread or outright call option to enhance the risk-to-reward profile in this stock to buy.
Virgin Galactic (SPCE)
Source: Charts by TradingView
Sir Richard Branson’s space tourism venture needs no introduction and it has been on many investors’ lists of stocks to buy lately. From the get-go shares have been a highly active battleground stock. But the company’s plans of putting civilians into zero gravity are ever closer to becoming a reality later this year. And this week’s CEO appointment of Disney (NYSE:DIS) exec Michael Colglazier should prove instrumental in ensuring all systems are go.
On the weekly price chart a meteoric rally in early 2020 followed by a healthy correction now finds SPCE stock blasting higher in an emerging uptrend within the right side of the crater-sized base. I’d expect this SPAC stock to buy to see a bit of profit-taking next week. But be sure to keep it on the radar for pullback opportunities. My best guess is any price weakness should prove short-lived.
Source: Charts by TradingView
The last of today’s SPAC stocks to buy is Workhorse Group. Many investors are familiar with fellow SPAC play Nikola (NASDAQ:NKLA) and the company’s promise of bringing electric trucks and semis into the market. Those plans are only in the prototype stage of what could be a long and ultimately unsuccessful build.
For investors wanting something more tangible within this exciting market, there’s Workhorse. The company is already delivering on its electric cargo vans and pickup trucks with orders from the likes of United Parcel Service (NYSE:UPS) and Germany’s DHL (OTCMKTS:DPSGY). But there’s more to WKHS too.
Workhorse maintains a comparatively lithe market cap of around $1.50 billion and offers investors a well-positioned drone delivery business. The company’s 10% stake in privately held Lordstown Motors, whose Endurance electric truck is making some noise, could also prove to be a big win. And there’s the possibility the company lands a piece of the United States Post Service next-generation vehicle contract, estimated at $6.3 billion.
All told, there’s a lot to like about this SPAC stock. And that includes the price chart too.
Technically, shares are putting together a decent-looking corrective triangular base. The pattern has found support off the 38% retracement level of its month-long rally. Specifically, this rally was established in June, immediately after shares were re-engineered into Workhorse. I’d advise buying WKHS stock, along with a protective put or collar strategy, if shares can maintain its chart supports and motor back above $16.25 along with a bullish crossover in stochastics in tow.
Disclosure: Investment accounts under Christopher Tyler’s management do not own any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.