In 2020, special purpose acquisition companies (SPACs) were some of the hottest stocks to buy. Also known as blank-check companies, these entities raise capital to acquire or merge with a privately held company. SPACs have been around for decades. However, it’s only been in the past year that they’ve become a vehicle to take some of the hottest early-stage names public.
These include electric vehicle (EV) plays like Churchill Capital IV (NYSE:CCIV), which is taking hot EV startup Lucid Motors public. Another hot sector that SPACs have been involved in is online gambling. For example, Draftkings (NASDAQ:DKNG) was one of the first to zoom to the moon once its deal closed.
With these fast gains made by early movers, investors dived head-first into SPACs. This trend continued into 2021, peaking during February’s “meme stock” phenomenon. Yet, since then, Wall Street and Main Street have shifted and taken a more critical view of these companies. Institutional interest has waned while valuation concerns persist. Retail investors, burned by heavy losses over the past few months, have soured on them as well.
However, in the aftermath of the SPAC selloff, there may be opportunity. Many of the companies that went public this route were — and still are — over-hyped and overvalued. But some diamonds in the rough remain.
So, which SPACs still offer opportunity, post-correction? These nine names may be ones to keep on your radar:
- Apex Technology Acquisition (NASDAQ:APXT)
- Fisker (NYSE:FSR)
- Gores Holdings VI (NASDAQ:GHVI)
- Golden Nugget Online Gaming (NASDAQ:GNOG)
- Hims & Hers (NYSE:HIMS)
- Nebula Caravel Acquisition (NASDAQ:NEBC)
- Paysafe (NYSE:PSFE)
- Revolution Acceleration Acquisition (NASDAQ:RAAC)
- Skillz (NYSE:SKLZ)
SPACs to Buy: Apex Technology Acquisition (APXT)
As its planned merger with cloud data management firm Avepoint is still pending, now may be the time to buy APXT stock. Soaring after the announcement of this deal back in November, shares bounced between $14 and $18 per share through early 2021.
However, in the months since the selloff, shares have dropped back toward their $10 offering price. Investors have lost confidence that this deal will be a long-term winner. But that shift in sentiment may be your opportunity.
How? As Matt McCall discussed back on May 10, this recent pullback left APXT stock “too cheap.” After all, Avepoint has been crushing it over this past year. Sales growth has continued to exceed expectations. So, unlike some of the other names going public via SPACs, this one looks like it can live up to its aggressive long-term projections.
Better yet, at today’s prices, the deal’s pro forma valuation is reasonable, leaving sufficient room for the stock to rise as it continues to meet (or beat) expectations. As investors sit on the sidelines, waiting for the merger to close, now may be the time to dive into shares.
Fisker is one of many EV startups that has gone public via SPAC recently. However, despite such a crowded field, it could be a standout contender.
Sure, the buzz around FSR may be less than what’s been seen with Lucid Motors. Yet, while the company does have its work cut out for it, this second-attempt upstart has many factors in place that give it a strong chance of success.
For starters, instead of going it alone, the company has opted to partner with an experienced automotive company, Magna (NYSE:MGA), to help build its flagship Ocean SUV (set to release in 2022). And that’s not the only deal Fisker has made with a deep-pocketed partner. Just this month, it also finalized a partnership agreement with electronics maker Foxconn. The two will co-develop another EV model that’s set to debut in 2023.
Partnering with third parties may limit FSR stock’s upside potential down the road. However, it also helps mitigate downside risk. Not only that, it may be what enables this early-stage company to take on established EV names like Tesla (NASDAQ:TSLA) and incumbent automakers like Volkswagen (OTCMKTS:VWAGY).
This Foxconn news, coupled with its recent well-received quarterly update, has put FSR stock on the rise once again. Of course, it may take time for Fisker to bounce back to its all-time high of around $32. But, ahead of the company making more progress, now may be the time to buy.
SPACs to Buy: Gores Holdings VI (GHVI)
GHVI stock is another pick of the SPACs with a pending deal. Its merger target? Spatial data company Matterport, which is able to turn any physical building into a 3D “digital twin.” This platform has only just cracked the surface of what could be a $240 billion addressable market.
Even as shares have fallen nearly half from their February highs — from $28 down to around $14.50 today — it’s easy to see why investors continue to assign this company a high implied valuation (Page 30).
Admittedly, this SPAC needs to live up to aggressive projections for it to pay off for investors. Yet, this company is already a leader in its niche. Additionally, there’s clear demand for its platform among a wide swath of end-users. Put this all together and it’s not far-fetched to imagine this name eventually scaling up into a multi-billion dollar, high-margin enterprise.
It may take years for things to fully play out here. Shares may stay at or dip below today’s prices for awhile. But, as one of the stronger blank-check contenders out there, this still may be another opportunity to consider ahead of its deal close.
Golden Nugget Online Gaming (GNOG)
Formerly known as Landcadia Holdings II, this name soared last year, when gambling SPACs were all the rage. That was during the lead-up to its deal close in December. All in all, investors were initially excited to gain exposure to this iGaming, online casino operator.
Already profitable, Golden Nugget Online Gaming touted its plans to move into other states. Yet, since January, shares have been on a continued slide. They’ve fallen from as high as $27 to around $13 per share today.
Why? One key reason may be the concern that GNOG can’t repeat its past success as it expands into other parts of the country. But, while sentiment on this iGaming stock has been more negative relative to other plays, some analysts like David Katz of Jefferies have been bullish on its prospects. Assigning GNOG stock a “buy” rating back in April, Katz sees higher margins for iGaming compared to online sportsbooks as well as a $19 billion total addressable market (TAM). According to the analyst, that could make shares more than double from today’s prices.
Sure, even after getting beaten down by Wall Street, a lot of GNOG’s growth potential remains priced-in. However, we should start to see this name’s nationwide expansion yield tangible results. This may renew confidence in Golden Nugget Online Gaming shares, sending them back in the right direction.
SPACs to Buy: Hims & Hers Health (HIMS)
Trading today for around 10 times its estimated 2021 sales, HIMS stock still looks pricey. So, why buy now? After all, you could make the case that additional valuation contraction will again push this stock down to single digits, below its $10 offering price.
Given its current and projected sales growth, though, it may be worth paying up for this name. In the first quarter of 2021, Hims & Hers saw its top line soar by 74% year-over-year (YOY). The telehealth and wellness provider has smartly built a business tailored to a millennial target demographic.
True, the pandemic may have driven much of this recent growth. But, don’t count out this company’s potential to keep growing at an above-average clip for years to come. As its target demographic approaches middle age, they’ll be in increased need of healthcare. And, instead of moving on to established providers, they may stick with Hims and Hers.
Shares have been on the uptick since mid-May, bouncing back over 50% off the recent lows. Of course, this could taper off in the near-term, as investors reassess the fair value of this fast-growing play. However, while it may not deliver big gains short-term, this is another pick of the SPACs that could pay off in the long haul.
Nebula Caravel Acquisition (NEBC)
Since March, Nebula Caravel has held steady around its $10 offering price. Currently, its deal to acquire dog-walking and pet-sitting app Rover is still pending. As InvestorPlace’s Chris MacDonald explained back in February when the deal was announced, this SPAC’s target company is growing fast. Rover’s sales are set to double both this year and next.
However, with an implied post-merger value of around $1.35 billion, you could also say that this company’s growth potential is fully factored into the NEBC stock price. High growth has likely kept investors from bidding this down too low. Yet, valuation concerns are likely preventing it from moving higher, too.
So, with its long-term growth seemingly priced-in, why consider this a buy? Well, Rover’s runway may be greater than investors currently expect. For starters, given the fact that its industry is set to bounce back post-pandemic, it’s possible sales for the next two years will be stronger than anticipated. Not only that, but with a TAM worth $95 billion, growth may also slow down much later than you’d think.
Of course, there’s no guarantee that NEBC stock — soon to be ROVR stock — will soar after languishing around the $10 level. A continued disinterest in SPACs could push this one down further into single digits. Because of that, you should keep this name on your radar but wait until the deal closes before making a move.
SPACs to Buy: Paysafe (PSFE)
As I recently put it, PSFE stock has “fallen to an appealing entry point.” The company, which closed on its SPAC deal in March, is a provider of payments services for online gambling operators.
This name is also well-established in Europe, where its Neteller and Skrill-branded applications have been long used for online casino and sportsbook deposits and withdrawals. However, the real appeal here is Paysafe’s potential to experience solid growth as the U.S. online gambling market rapidly expands.
Projections call for PSFE’s budding U.S. operations to grow at a compound annual growth rate (CAGR) of 55% between 2019 and 2025 (Page 13). True, its European and Canadian businesses may be growing at a much more modest pace. But, this stateside expansion could still help the company deliver double-digit top-line results over the next few years.
Since the selloff of shares, Paysafe stock has fallen to a reasonable valuation relative to its growth. Yes, shares could still sell off, depending on which direction SPACs go. But, while another pullback would make this a screaming buy, entering in at today’s price of around $11.50 still stands to be a worthwhile opportunity.
Revolution Acceleration Acquisition (RAAC)
What’s the story with RAAC stock? This pick of the SPACs is in the process of merging with robotics startup Berkshire Grey. Targeting the fulfillment-warehouse market, Berkshire stands to win big as warehouse automation rises from today’s currently low levels of just 5%.
When news of the deal broke, this stock only saw a modest bump. Trading for around $10, it moved up to around $13 per share. Like other SPACs, the shares have since sold off and are back near their pre-announcement prices. So, in light of the recent meltdown, it’s understandable why some investors may be sitting on the fence.
However, in taking a look at the projections, this company’s current implied valuation — a $2.7 billion market capitalization and a $2.3 billion enterprise value — may be a steep but worthwhile price. Given that sales could be as much as $927 million and adjusted EBITDA could be $232 million by 2025, there’s plenty of room for the stock to soar higher. Of course, that’s if everything pans out.
With the automation trend still fully in motion, though, this SPAC may have been unfairly discarded by Wall Street in the selloff. Buying RAAC stock now — ahead of its possible future success and before more investors become aware — could prove to be profitable down the road.
SPACs to Buy: Skillz (SKLZ)
After collapsing this spring, SKLZ stock has been attempting to bounce back. The mobile gaming competition platform may have once wowed investors. But, following several scathing reports from vocal short sellers, not even continued buying from Cathie Wood’s Ark Invest has been enough to send this stock back in the right direction.
Granted, having Cathie Wood in your corner may or may not exactly be a seal of approval. Wood’s story-stock-focused investing strategy paid off handily in 2020. So far this year, though, her firm’s family of exchange traded funds (ETFs) have failed to see similar levels of success. That said, while the stocks Ark Invest favors may be going out of style, this doesn’t automatically make Skillz a bad opportunity — especially at today’s prices.
Why? Still beaten down by the aforementioned short reports, investors are now doubtful that Skillz can continue to grow. Yet, with low expectations baked in, shares now stand to gain massively if the gaming-tournament bull case plays out.
Some analysts, including InvestorPlace’s Luke Lango, project an eventual move back to $40 per share. So, taking a contrarian position at today’s prices of around $17 could pay off tremendously once investors get over the negativity around SKLZ stock.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.