After dominating 2020, the special purpose acquisition company frenzy shows no signs of slowing down. In the year thus far, 189 privately held startups have debuted through this route, raising approximately $60.8 billion in the process. Against this backdrop, Chamath Palihapitiya’s Social Capital Hedosophia Holdings IV (NYSE:IPOD) stock is trading at an attractive entry point.
IPOD stock is at a 31% discount to its 52-week high.
You may be wondering why you should invest in a shell company with no revenues and operations. One that is still on the lookout for a merger target. Well, the answer to that is simple. Chamath Palihapitiya, the undisputed king of SPACs, is its sponsor. In a world where a new SPAC is coming to the market every other minute, that kind of brand recognition is important.
His expertise in bringing high-performing tech startups to the market through these vehicles is becoming mythical. And the party isn’t ending anytime soon. Social Capital has registered for seven new names with the SEC, in furtherance of Palihapitiya’s mission to launch SPACs from IPOA to IPOZ.
Where does IPOD fit into this spectrum? After debuting in November, the stock rocketed close to 69% before cooling off. Ebbs and flows are part and parcel of investing in the space, and there is nothing to suggest that it will change anytime soon. But the biggest catalysts for IPOD stock are yet to come, which makes it an attractive play.
It’s understandable if you aren’t long on this one. IPOD is not Coca-Cola (NYSE:KO) or American Express (NYSE:AXP). But you can still make profits on this one before the inevitable blockbuster merger announcement.
IPOD Stock Is a Relatively Safe Play in the SPAC Space
If someone came up to you a couple of years back and said that you should invest in a blank check company with no specific business plan or purpose, you would think they are joking. However, the SPAC frenzy we experienced last year turned naysayers into true believers of this concept.
There is no denying that there is a strong speculation element that is pushing up SPAC stock prices. It would be best to look at the astronomical valuations to understand that they are a bit bloated at this stage. We have also seen several companies crash and burn after questions regarding their operations emerged.
However, in the world of SPAC investing, you have little to go by other than the sponsor. Over here is where IPOD takes the cake. Chamath Palihapitiya is to SPACs what Elon Musk is to clean energy. Palihapitiya’s first SPAC merged with space exploration company Virgin Galactic (NYSE:SPCE) in October.
Since then, he has never looked back. The only blot on his record is Clover Health (NASDAQ:CLOV), which went public after merging with Social Capital Hedosophia Holdings III (IPOC). It’s under investigation by the Securities and Exchange Commission (SEC) after a scathing report from short seller Hindenburg Research.
Otherwise, Palihapitiya has had a fairy tail run on Wall Street. His fourth SPAC has raised $400 million. Up until now, we haven’t seen any traction regarding a potential merger target. Silano NanoTechnologies, a Silicon Valley battery materials company, has come up as a contender, and so has Irish-American online payment processor Stripe. Regardless, whenever a merger target is announced, IPOD stock will skyrocket.
Even if you don’t believe in the SPAC-induced hysteria gripping the markets, there is certainly money to be made from investing in IPOD stock. Shares will continue to gather steam before a merger target is identified. Considering Palihapitiya’s record, I don’t expect it to be a dud. When the merger is announced, the stock price will spike. At that moment, you can decide whether it’s worth exiting your position.
However, by that time, you would already have made some nice return on your investment. There will be short-term catalysts along the way, like merger approvals. Heck, even Palihapitiya’s tweets make the stock soar northward. Hence, you cannot go wrong in investing in this one, at least until a merger is formally announced.
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. Faizan does not directly own the securities mentioned above.