Did April mark the end of SPACs? Maybe but here's one to put on the radar...

SPACs (Special Purpose Acquisition Companies) had a wonderful 2020, both in terms of money raised (over $80 billion) and stock performance (DKNG being probably the poster child). The first 3 months of this year saw record issuance with close to 300 deals raising more than in all of 2020! Then came April...  Only 10 new issues so far this month, with the average SPAC is down 20% or so. Some high profile ones have plunged 50% or more in a few short months (check out CLOV stock YtD stock price). That being said, I think it might be a tad bit premature to call an end to this mechanism of taking a company public. However unlike in 2020, where you could purchase almost any SPAC and stand a very good chance of making money, investors will have to be much more picky in deciding which ones to play. I do have one that I think is poised to do well, but that will come at the end of this piece.

Are SPACs likely here to stay? Here are a few of the benefits of a SPAC as compared to a traditional IPO which makes me inclined to answer YES to the previous question:

• speed is one of the huge selling points. It is generally much quicker to go public by merging with a SPAC than by going through the traditional IPO process
• costs is another benefit. It is cheaper than an IPO as the issuer has already paid the issuance fees to investment banks. These can add up and although the underwriters do have a role to play in ensuring that transactions are successful, they do charge a pretty penny.
• financial information provided to the public ahead of the merger is much greater than that provided during an IPO. There are severe restrictions on what the management team of a pre-IPO company can reveal. With SPACs the target companies have more flexibility in providing forward looking statements.
• an existing investor base already exists with SPACs as they have been shareholders in the original "blank check" company prior to merger. In the case of an IPO, the investors who get shares on day 1 are by definition new to the company and may or may not be long term holders.
• lack of an overhang is also nice and can help investors sleep a bit easier at night without having to worry about what could happen 6 months into a company's listing.

Obviously nothing goes up in a straight line, and in many ways it's nice that the hot air has begun to come out of the SPAC balloon. This is healthier for the market long term. As we like to say, "if it's a bubble, it can double." While it is fun when things rise and rise and rise (unless one is short of course - GME anyone???), gains are always more sustainable if they come in slow but steady increments rather than in 10%+ bursts on no news, multiple days or weeks in a row.

Now, onto the stock recommendation. I may be biased, given that I live in LA, but I think that the Social Capital Hedosophia Holdings V (code IPOE) is worth a look here. It is set to merge with SOFI (the name on top of the brand new $5billion football stadium here in Los Angeles, home to the LA Rams and LA Chargers). When the deal to merge was announced in early January of this year, the stock ran up from $12 a share to the high teens. At the peak of the SPAC market it touched $25. Today the stock is hovering around $16 after even breaking below $15 a week or so ago. Why do I think it is an attractive play?

• Chamath Palihapatiya has a decent track record as an investor and this is one of his ventures. Like everyone, he isn't flawless, but overall it's nice to be him!
• SOFI has tapped into the burgeoning field of fintech and a strong focus on millenials and those are set to be the high income earners of tomorrow.
• Although SOFI is a new type of financial institution, it is also attempting to acquire a banking charter which would expand its revenue potential and helping it compete with some of the more entrenched players (with much lower levels of customer service)
• Valuation isn't bad if SOFI is able to deliver its promised growth. Based on today's earnings the stock is quite rich, but the PE can fall quickly to the low double digits within a few years time if it reaches its targets.
• ...and let's not forget technicals, there appears to be a large short interest in the name, which makes the stock vulnerable to a short squeeze at some point (or at a minimum there are natural buyers of the stock - namely those that are currently short).

To borrow the words of the GOAT: "be fearful when others are greedy, be greedy when others are fearful." People are currently fearful of SPACs in general and IPOE in particular. Enough said and Good luck!