It has become very unfashionable to be bullish on stocks in general and growth stocks in particular. Nonetheless, I can’t help but believe that there’s a great deal to like about Digital World Acquisition (NASDAQ:DWAC) stock.
DWAC stock, a SPAC, has agreed to merge with President Donald Trump’s Trump Media & Technology Group (TMTG), the company that owns Trump’s social media site, Truth Social. As a firm that has not yet reported any revenue, TMTG is the quintessential type of growth stock that has lost favor with the Street.
Nonetheless, several recent developments have made me more upbeat about DWAC stock, causing me to recommend that risk-tolerant growth investors buy a relatively small amount of the name.
Trump is Back and Truth Social Is Alive Again
For many weeks, the former president did not post anything on Truth Social. He did, however, recently break his silence, writing “I’M BACK! #COVFEFE” on the site late last month. And in another sign that the former president is going to become more active on Truth Social, he is reportedly going to appear this Friday on Rumble, the YouTube competitor that’s partnering with Truth Social. Rumble has agreed to merge with another SPAC, CF Acquisition Corp VI (NASDAQ:CFVI).
Meanwhile, Truth Social has reportedly again become one of the most downloaded apps on Apple’s (NASDAQ:AAPL) App Store. As I explained recently on StockTwits, more downloads can lead to more usage which should lead to more revenue. Further, Forbes columnist John Brandon theorizes that the publicity around Elon Musk’s successful takeover offer for Twitter (NYSE:TWTR) and that billionaire’s emphasis on “free speech” has “risen all boats” and thus also increased interest in Truth Social as well.
The Midterms and DWAC Stock
The midterm congressional elections are less than six months away, and the Republican primaries, in which Trump has seemingly become a kingmaker, are underway. Consequently, interest in the former president appears to have reached the highest level since his second impeachment trial in January 2021. That development can only be positive for Truth Social.
Indeed, as a result of Trump’s rejuvenated star power, if he starts to post regularly on Truth Social and (even better from the perspective of DWAC stock) begins to release videos on the site, Truth Social’s user metrics could very well explode higher.
When DWAC stock was in the $90s, Trump had not yet posted on Truth Social, not many news outlets were talking and writing about him daily, and the app was having all sorts of problems, I recommended selling the shares and did so myself. Although the stock was still more than 50% below my base-case scenario estimate, I thought the shares carried excessive risk for only a roughly 5% gain.
Now, though, the shares are changing hands for only about 33% of my base-case estimate, the technical problems seem to have been largely ironed out, Trump is more active on the site, and he’s in the news again.
As a result, I believe that the stock’s risk-reward ratio has become favorable, I bought shares of DWAC stock again, and I recommend that all risk-tolerant investors do so as well.