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7 SPACs With The Most Potential as Scrutiny of Blank-Check Firms Grows

SPACs - 7 SPACs With The Most Potential as Scrutiny of Blank-Check Firms Grows

Source: iQoncept/ShutterStock.com

Since peaking in February, it’s generally been rough going for shares of special purpose acquisition companies or SPACs. Raising capital from the public markets, and using the proceeds to acquire privately held companies, 2020 saw once-obscure blank-check companies become one of the hottest areas to invest in on Wall Street.

But after the bubble popped? Names in this space, high-profile and more obscure, fell sharply from their highs. By-and-large, they’ve struggled to come back. Retail investors have been slow to renew their interest, burned by their losses. In light of Nikola (NASDAQ:NKLA) founder Trevor Milton’s legal troubles, we may see future scrutiny about the methods employed by SPAC sponsors to boost valuations and gin up interest (including the aggressive use of projections). This too, could discourage a recovery for this space.

Yet while these types of stocks as a whole may fail to bounce back, some still stand to become long-term winners. That is, there are plenty of SPAC stocks with more than just “hype” behind them. Several of the early stage names that have gone public this route could eventually produce big gains for your portfolio, as the “stories” behind them play out throughout the decade.

So, separating the good opportunities from the bad ones, which SPACs stand out as names with the most room to gain in the coming years? Consider these seven solid contenders to deliver strong long-term returns for investors:

  • AST SpaceMobile (NASDAQ:ASTS)
  • Luminar (NASDAQ:LAZR)
  • Matterport (NASDAQ:MTTR)
  • Microvast Holdings (NASDAQ:MVST)
  • Opendoor Technologies (NASDAQ:OPEN)
  • QuantumScape (NYSE:QS)
  • TPG Pace Beneficial Finance (NYSE:TPGY)

SPACs: AST SpaceMobile (ASTS)

SPACs: ASTS stockIt’s safe to say that ASTS stock is a “moonshot” opportunity. The SPAC, formerly known as New Providence Acquisition, closed on its merger deal back in April. The operating company it acquired? It’s currently attempting to build a space-based cellular network.

By decade’s end, if all pans out, AST SpaceMobile could scale into business generating as much as $16.5 billion in sales. With its high projected margins, its eventual valuation could be a healthy multiple of that revenue number. The catch? Its chances of this happening aren’t set in stone.

As analysts in Deutsche Bank discussed in their bullish call on ASTS stock back in June, either the company succeeds with its cellular network, and becomes worth many times what it trades for today. Or, the venture winds up a flop and shares essentially become worthless.

That’s why investors today are only willing to pay $11 per share for it today. At these prices, this potentially multi-billion dollar sports a market capitalization of just $1.95 billion. But if you stomach the possibility of a total loss and are looking for a stock that could literally “go to the moon?” Consider this high-risk, but high potential return play one of the SPACs out there with the biggest potential.

Luminar (LAZR)

LAZR stock
Source: JHVEPhoto/shutterstock.com

Autonomous vehicle (AV) technology play Luminar was one of the deSPACed (that is, a SPAC that completed its merger) blank-check companies that’s fallen substantially from its highs. Back in December, when its deal was still pending, shares traded for as much as $47.80 per share.

Yet after bouncing between $30 and $35 per share when SPACs were at peak popularity, since February it’s fallen to around $17.60 per share. Yet while investors who dived in near its highs may be taking the loss and moving on, diving into it now could be a shrewd move in hindsight.

Why? As Lidar, or laser radar, which is used to enable self-driving capabilities, becomes standard in vehicles, LAZR stock is one of the names in this space looking set to benefit the most. Admittedly, it’s a bit pricey. Not only to its current sales, but to its projected 2025 sales as well. Even so, shares may have substantial runway, their current rich valuation notwithstanding.

As our own Luke Lango broke it down back in June, Luminar may have the edge over its rival. Its talented engineering and management team has developed a low-cost lidar system that outperforms the competition. Already locking down a partnership deal with Volvo (OTCMKTS:VLVLY), other deals with automakers are likely to follow. It may take time for it to soar again. But consider this another one of the former blank-check stocks that could deliver stunning returns in the coming years.

SPACs: Matterport (MTTR)

MTTR stock
Source: Company

Formerly known as Gores Holdings VI, or GHVI stock, this SPAC became deSPACed late last month, completing its pending deal, and becoming MTTR stock. What’s the “story” behind the operating business it’s merged with?

The industry Matterport is targeting may be a bit more niche. The company so far has made itself a leader in the spatial data space. Spatial data technology is used to create 3D “digital twins” of physical places/objects. In this company’s case, its platform is used to build detailed models of buildings.

What gives this company such massive potential? The wide range of end-users who could use this product. Besides, of course, real estate brokers and developers, businesses can use this technology to figure out office and retail layouts. Add in other possible applications, and the company’s belief that this is possibly a $240 billion total addressable market doesn’t seem so far-fetched.

Projected to generate just $123 million in sales this year, Matterport has its work cut out for it. Its current valuation ($3.73 billion) is built upon its projections of generating $747 million in sales, and gross margins above 70%, by the middle of the decade. But considering its upside potential if it hits projections, versus the risk it pulls back further? It may be worth it to enter a position today, as it trades for around $15 per share.

Microvast Holdings (MVST)

SPACs: MVST stock
Source: Shutterstock

Microvast is another deSPACing that’s happened in recent weeks. The former Tuscan Holdings closed on its deal to buy this EV battery maker, and assume its name, on July 26. As you likely know, many upstarts are going after a large piece of the EV battery pie, including a more prominent one discussed below (Quantumscape).

So, what makes MVST stock an EV battery stock you shouldn’t pass up? Back in April, I made the case why this is one of the SPACs that’s worth “getting in early” on. Sure, it seems every company that’s gone public this way has presented investors with projections implying tremendous growth ahead. It’s clear more than a few will fail to miss the mark.

But I wouldn’t consider Microvast as one that’s going to disappoint. Smartly targeting the commercial vehicle space, and leaving its rivals to fight over the passenger market? Already partnered with commercial vehicle makers spanning the globe, including Oshkosh (NYSE:OSK), it appears well on its way to hit its revenue targets over the next few years.

That includes hitting $1.46 billion in sales by 2025, and $6.85 billion in sales by 2030. With high adjusted EBITDA margins expected as well, shares could deliver stunning returns in the years ahead. As it slides back to single-digit prices ($8.40 per share as of this writing), consider MVST stock a buy.

SPACs: Opendoor Technologies (OPEN)

OPEN stock
Source: PREMIO STOCK/Shutterstock.com

Opendoor is just one of many fast-growing companies taken public by SPAC impresario Chamath Palihapitiya in the past year. Much of attention today may be being paid to Palihapitiya’s other high-profile SPACs, like Clover Health Investments (NASDAQ:CLOV) and SoFi (NASDAQ:SOFI).

But this real estate i-buyer may be the one worth keeping an eye on. What’s an i-buyer? Basically, it’s a digital house flipper. I-buyers make instant cash offers for homes, using algorithms for pricing. After making improvements/repairs, the i-buyer turns around and re-sells it.

A booming housing market, and enthusiasm for all things “disruptive” is what attracted investors to OPEN stock, which shortly after its deSPACing traded for as much as $39.24 per share. But as concerns about its business model mount, and SPACs in general have trended lower, shares have fallen by around 63%, and trade at around $14.35 per share today.

There’s no getting around the biggest risk with Opendoor. As Dana Blankenhorn wrote July 30, the company could be in for trouble if housing prices reverse. Yet if we see real estate cool down rather than crash from here? With more room to expand its presence (for example, it hasn’t yet begun to flip homes in lucrative east coast metro areas like New York and Washington), in the coming years it could make up for its recent losses, and head toward new highs.

Quantumscape (QS)

QS stock
Source: Michael Vi / Shutterstock.com

Late last year, when Joe Biden’s victory in the U.S. presidential election fueled further runway for vehicle electrification stocks, QuantumScape stock was one that became very overheated. Shares hit a high of $132.73, more than 13 times this former SPAC’s initial offering price of $10 per share!

But as the months progressed, investors realized that “blue wave” election results didn’t mean an instantaneous pivot from gas-powered to electric-power. The stock has since sold off considerably, and trades for around $21.80 per share today.

One key issue that remains in the way of EVs gaining critical mass is battery. This could change in the next few years, as Quantumscape makes progress with its solid-state battery, or SSB, technology. Offering faster charging times, and greater range, SSBs will likely replace lithium-ion batteries as the predominant power source for EVs. Partnered with Volkswagen (OTCMKTS:VWAGY), the company plans to have its batteries ready for use in vehicles by 2024.

Per numbers provided in its October 2020 analyst presentation, by 2028, annual revenues could hit $6.4 billion. Impatient investors may have cashed out. Yet as recent headlines signal things remain on track, QS stock still stands to be a solid opportunity for investors buying now, as the past hype around it has long since faded.

SPACs: TPG Pace Beneficial Finance (TPGY)

SPACs: TPGY stock
Source: Virrage Images / Shutterstock.com

First off, it’s important to note one caveat with this high-risk, possibly high-return SPAC opportunity. Unlike the names listed above (which have already deSPACed), the merger deal with TPGY stock is still pending. Why is this a caveat? There’s a risk its deal to merge with European EV charging infrastructure provider EVBox could fall through for TPG Pace Beneficial Finance.

That’s why shares have held steady not too far above their $10 per share offering price. But if you’re willing to take a gamble, and wager that the deal prevails? As a Seeking Alpha commentator detailed it on July 30, the potential gains from the deal going through could outweigh downside risk. Why? For one, at today’s prices, compared to U.S.-based rival ChargePoint Holdings (NYSE:CHPT), it trades at a lower valuation.

At the same time, EVBox could be better positioned than ChargePoint when it comes to profiting from the anticipated build-out of America’s EV infrastructure once the recent infrastructure bill passes. Just a few years away from hitting breakeven EBITDA, a successful expansion into the U.S. market may be what moves it to the point of profitability.

The risk of its deal blowing up may hang over it. But given its massive potential if the deal goes through? Consider this another of the SPACs to keep an eye on as a possible long-term winner.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2021/08/7-spacs-biggest-potential/.

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