The coverage has been glowing for Foley Trasimene Acquisition II (NYSE:BFT). But in a market which has applied the brakes on an overcrowded SPAC space, is now a good time to buy BFT stock on weakness? Let’s take a look at what’s happening both off and on the price chart and offer a risk-adjusted determination aligned with those findings.
One year ago the broader market was introduced to the bearish possibilities of the novel coronavirus. Briefly. The dizzying, record-breaking bear market turned into a spectacular, once-in-a-lifetime buying opportunity on the back of an equally spellbinding rally. And among the best performers were reverse merger, special purpose acquisition companies, albeit without help from Foley Trasimene, which hadn’t yet revealed its first act as BFT to investors.
Unsurprisingly, given the quick ‘risk-off’ program change in the market, the thematic SPAC trade has made a sudden turn for the worse. And the collateral damage in blank check outfits like BFT waiting for their “I thee wed” turn as a newly-christened ticker and publicly-traded business has been swift.
Whether reflation fears are to blame or more simply the market’s knack for repeating painful lessons forgotten is up for debate. For that matter, so is the sheer amount of SPACs that have come to market. It’s a worrisome dynamic. Following 2020’s record year, January alone raised more than $38 billion for 128 pending SPAC IPOs. That level of commitment from investors surpassed the entirety of money raised through SPACs in all of 2019!
Churchill Capital Corp (NYSE:CCIV). Switchback Energy Acquisition (NYSE:SBE). CIIG Merger (NASDAQ:CIIC). Pershing Square Tontine Holdings (NYSE:PSTH). Each of those high-profile, pending reverse mergers has been punished severely this week. And BFT, despite being among the group’s most recommended plays, hasn’t proven immune to the selling pressure either.
To be fair, most SPACs price action has been substantially more painful this week than what’s occurred in BFT. CCIV was down nearly 40% on Tuesday. But those shares had company-specific news confirming its reverse merger with Lucid Motors. Buy the rumor and sell the news I suppose. Still, don’t feel too bad for those investors. Not yet at least. The stock is still holding onto a massive gain of more than 250% in 2021.
Nevertheless, BFT was down 12% during Tuesday’s broader market decline. For most stocks, that’s a meaningful loss. Worse, since peaking on Jan. 25, Foley shareholders have seen their investment decline by as much as 26%.
Again though, this week’s loss doesn’t tell the entire story. BFT stock is still handily beating the market. Compared to the S&P 500’s gain of 3.5%, BFT is up a whopping 7.15% on the year.
BFT Stock Daily Price Chart
Source: Charts by TradingView
Did I miss adding a zero or two in describing BFT stock’s mighty wherewithal? The short answer is no. Possibly more concerning, however, is BFT’s rather limp outperformance despite oodles of ‘buy now’ style accolades from my colleagues at InvestorPlace. Pages of archived BFT analysis reveal overwhelmingly one-sided purchase recommendations of various stripes for Foley Trasimene shares. And yet this heralded horse and jockey combination is nowhere close to the winner’s podium.
I’m proud and confident of what my fellow contributors bring to the table every day. And that goes for BFT too. Importantly though, there are warning signs that all may not be right with Foley shares, whether of their own making or the market environment. And no matter how compelling the pitch, in this case a great money manager and cashless business set to take our breath away during 2021’s first-half, I’m simply wary of BFT simply vanishing with investors hard-earned money.
They say hope springs eternal. And no doubt BFT investors are hoping Tuesday’s late save, which shaped a bullish hammer pattern off the stock’s 50% retracement level, makes good on that promise. I wish those shareholders the best. I do. But if you’re considering a relationship with this SPAC for the first time, the July $20/$30 bull call spread is a calculated strategy for catching up and hands down beating those other plentiful ‘best thingamajiggy’ stories out there or simply preserving capital if things get really ugly.
No Stocks Owned: On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.