I’m not sure how much you know about special purpose acquisition companies (SPACs) but Pershing Square Tontine Holdings (NYSE:PSTH) is run by hedge fund superstar Bill Ackman.
Does that make it a good investment?
Let me tell you a quick story that goes all the way back to dot-com bubble of the late 1990s.
Back then, brokers – remember them? – were telling their older clients that growth stocks (i.e., unknown tech companies) were the new income stocks. They encouraged their retired customers to dump utilities and their lame dividends and get into the game-changing growth sector of internet stocks.
There was also an industry joke that if a stock didn’t have a triple-digit PE, it wasn’t worth buying.
I’d say, if history isn’t repeating itself, the echo is certainly haunting.
One of the only differences between now and then is the fact that we’re in a world with interest rates near zero, which means money is going to go where it can grow. And for companies and individuals, that means the markets.
Back in the ‘90s we still had interest rates on money, here and abroad, so money would move in and out of stock and bond markets, certificates of deposit, etc. Now, it’s all in the stock market, so this bull just keeps charging.
But this just means there are more grifters out there selling vaporware and two-legged stools. I remember during the dot-com boom that listed one as a dotcom but had no business model, one employee and a fanciful story. It was bid to the moon and stayed there for a long time.
SPACs and blank-check companies have that scent.
It’s Different This Time?
But just as there were some solid companies back then that may have been overvalued, they were still good investments (not trades), so today PSTH stock represents a credible name in dubious crowd.
Ackman, who runs the big hedge fund Pershing Square, has always managed to seek opportunities that others aren’t as willing to embrace.
For example, he made $1 billion short bet on Herbalife (NYSE:HLF) stock and hung on for five years before relenting.
He also made a bet at the bottom of the market last year that turned his $27 million position into $2.6 billion.
The point is if you’re looking at a blank check company, PSTH is worth considering. Pershing Square is a top-flight firm that’s highly skilled at finding and unlocking value in companies.
The trouble is, you’re just investing in a company that may buy something in some business, in some sector, some day. And Ackman is the CEO of a hedge fund company, not a tech firm or manufacturing firm. Leadership is also quite opaque.
To Buy or Not to Buy PSTH Stock?
There’s no doubt that SPACs and blank-check companies have been around for a while. And sometimes they are a crafty way for a company to get to market without having to deal with rounds of funding and underwriting that immediately displaces some funding raised by taking a company public.
But right now, as with many things during the pandemic, this has gotten a bit out control. The amount and size of these deals are growing.
PSTH is expecting to launch with a $5 billion to $7 billion market cap. Skip right past a small cap and mid-cap stock, and head right to big-cap territory.
And the crazy thing is, PSTH stock is up 30% in the past three months, around 17% since it launched in May 2020. That means investors are buying this concept at a premium.
For all the street cred Ackman and Pershing Square have, I can’t bring myself to recommend a potential idea instead of a real company with real numbers. I know I might not be cool, but I prefer a peaceful night’s rest anyway.
On the date of publication, GS Early has no position in the stocks featured in this article. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.