Pershing Square Tontine Holdings (NYSE:PSTH) is the latest in a long line of special purpose acquisition companies (SPACs) that have taken the markets by storm over the last 18 months or so. Still, even amidst all the speculation, PSTH stock is worth the gamble.
The reason I believe in PSTH stock is billionaire investor Bill Ackman, founder and CEO of Pershing Square Capital Management.
Ackman is certainly a controversial figure in the financial world, but it’s tough to argue against his track record. Pershing Square soared to a 70% return in 2020, surpassing its previous record of 58% in 2019. The billionaire investor’s hedge fund saw its net asset value per share increase from approximately $27 to more than $45 between January and December.
As with any trade of this nature, there are risks. We now have hundreds of SPACs hunting for companies to merge with. Meanwhile, there are a restricted number of sectors attracting the most attention.
For instance, the SPAC supply explosion means EV companies can shop around for better terms. SPAC disclosures also put more weight on forecasted financial data, while IPO prospectuses require audited past financial statements, making SPACs inherently risky.
Under these circumstances, it becomes imperative to employ an effective strategy in selecting the next SPAC play you want to get your hands on.
Buy the Rumor, Sell the News
When we think about the market’s current state, it reminds me of Russian roulette. It’s a lethal game where each player takes turns pressing a revolver’s trigger, which has only a single round inside. It’s a far cry from dividend or deep value investing, which are more peaceful affairs in comparison.
It may seem boring, but that is how the markets worked for decades. Essentially, you identify companies with sound management and policies and then invest your capital. However, at the moment, that concept has been turned on its head. Part of the reason is that EVs and other high growth areas are receiving a ton of attention.
But through all this, you need management or vision to believe in. That’s where PSTH the stock becomes interesting. The hedge fund company has $13.1 billion in assets under management as of Nov. 2020. Pershing raised $4 billion for Pershing Square Tontine Holdings Ltd., the largest SPAC IPO to date. Ackman’s hedge fund has also pledged between $1 billion and $3 billion to any deal.
At this point, it’s up in the air as to which company is on the radar for Bill Ackman. Last year, there were talks that the hedge fund manager’s blank-check vehicle wanted to take a stake in former New York mayor Mike Bloomberg’s media empire.
He also reportedly had talks with Airbnb (NASDAQ:ABNB). Eventually, the company debuted through the traditional IPO route. Regardless, PSTH is looking for targets in four principal market segments; high-quality IPO candidates, mature unicorns, private equity portfolio companies, and family-owned companies.
InvestorPlace’s Web Editor Sarah Smith had a fascinating article that lays out some interesting potential targets.
PSTH Stock Is Worth a Small Position
When you are looking to invest in a SPAC, you have nothing to consider apart from the enterprise’s management. In 2020, over 200 blank check companies attracted $80 billion from investors.
In the year thus far, another 67 SPACs have hit the market.
“The trends we saw in 2020 are the ones we see in 2021—that’s continued acceleration and the continued acceptance of the SPAC product as a tool for companies to go public,” says Russell Chong, co-head of North American equity capital markets at Citigroup Inc.
Amidst all this, you have several companies that have crashed and burned. With a ruthless financial expert like Ackman at the helm, I believe that investors can rest easy. Furthermore, you have the usual scenario of gains awaiting you.
Eventually, a target company will be found, and PSTH stock will skyrocket. Thereafter, you will have several catalysts that you can exploit — board approval, merger completion, etcetera.
All of these will serve as excellent points to book your profits. I would initiate a small position in PSTH stock right now and wait for the right moment to sell. If the company Ackman finds is so good that you wish to go long, well then you can hold onto your investment post the merger announcement.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.