You’ve made headlines in the past few months for good reason. The SPAC or Special Acquisition Company is exactly what its name suggests: a company created specifically for an acquisition. In essence, a SPAC is a shell company that is flush with funds and was formed to achieve a merger goal. The target company is usually a small to mid-cap company that wants to go public but has no money. The SPAC provides the money.
It sounds like a lot doesn’t it? And for the SPAC investors it can be. SPAC shares are sold in units of $ 10 that include a warrant for future purchases at a set price. The result is a return of 10% or more with reduced risk for investors in the SPAC. According to a Wall Street Journal investigation into SPAC mergers that completed between January 2019 and June 2020, the combined company lost 12% of its value in the first six months of public trade.
As usual on the stock market, there is a mixture of risk and reward. However, the risks have not dampened the increasing popularity of SPAC mergers over the past year. In 2019, 59 of these transactions were completed – in 2020 there were 248, an increase of 320%. The average SPAC merger in 2020 was $ 334 million, up from $ 72 million in 2010.
Good or bad, Wall Street analysts still expect the SPAC train to keep rolling. Banking giant Goldman Sachs is forecasting SPAC merger activity totaling $ 300 billion by the end of 2022. The bank’s head of US equity strategy, David Kostin, explains the stance: “The increased retail activity has increased interest in early-stage SPAC targets. SPACs have low opportunity costs for investors when policy rates are close to zero. “
The professional analysts don’t just comment on the trend. They also look at the new tickers that are coming out and post their reviews. Let’s turn to that TipRanks databaseWe’ve released the latest information on two such stocks that some analysts have identified as potentially strong investments.
The Southern Californian manufacturer of electric vehicles started in 2016 and announced the completion of a SPAC merger with Spartan Energy on October 30, 2020. Since then, the stock has risen 64% in trading.
The rapid gains for Fisker demonstrate both the growing popularity of electric vehicles in the marketplace and the particular strengths of Fisker’s approach. The company is focused on solid state battery technology, an evolving alternative to the current lithium-ion batteries. Solid-state promises a longer range, faster charging and a lower weight of the EV battery backs. The company holds numerous patents for solid-state battery technologies that are designed to secure its niche for other industries such as consumer electronics.
Fisker also announced its all-electric Ocean SUV model. The vehicle will compete with Tesla’s Model Y, which has a similarly modern design and a lower starting price. The ocean is slated to hit the market in 2022.
Cowen Analyst Jeff Osborne is optimistic about the future of the EV market and Fisker’s place in it.
“[We] believe Fisker is well-positioned to participate in changing auto space as the industry undergoes a paradigm shift from ICE vehicles to electric vehicles. The auto industry continues to move towards an electrified future, with more government mandates directing countries and automakers to move towards an EV-centric future. Because of this, we believe that Fisker’s flagship Ocean Vehicle – a premium EV with an affordable starting price of $ 37,499 – is well positioned to participate in the large and growing EV market, “said the 5-star analyst.
In line with these comments, Osborne rates FSR as an outperform (i.e. buy), and its target price of $ 22 suggests the stock has upside potential of ~ 45% in 2021. (To observe Osborne’s track record, Click here)
Overall, the most recent FSR ratings, which are limited to 3 buys, 1 hold and 1 sell, give the stock a moderate buy consensus rating. The price of the stock is $ 15.21, and the average target price of $ 19.75 implies a year-long move up of 30%. (See FSR stock analysis on T.ipRanks)
Opendoor Technologies (TO OPEN)
Opendoor is an online residential property platform that enables buyers and sellers to connect directly without an agent. Opendoor operates in large urban areas in the United States, including fast growing cities such as Atlanta, Houston, and Nashville.
In December last year, Opendoor announced the completion of the business combination with Social Capital Hedosophia II. Trading on NASDAQ began on December 21 under the OPEN ticker. Opendoor ended the trading day with over 544 million shares outstanding and a market capitalization of more than $ 15 billion.
The online real estate market is expected to be profitable, and the open-door model, which institutional buyers can use to buy homes, especially from individual sellers. The company is expected to sell 24,000 homes over the next year and 38,000 the year after. In terms of sales, Opendoor is projected to reach $ 10 billion annually within three years.
Share coverage for Oppenheimer, 5-star analyst Jason Helfstein “Opendoor currently has a dominant lead in iBuyer market share and we believe the company will continue to achieve unprecedented economies of scale as it expands into new markets.”
Helfstein added: “We are forecasting an annual increase in the number of open houses with a CAGR ’19 -’25E of 26%. However, we expect the number of houses sold in the financial year to decrease by 48% year-on-year: 20 after March 19/20 Home sales pause due to COVID-19-related uncertainties. We have conservatively set our average revenue per home estimates at 1% CAGR ’19 -’25E, but we see these estimates as positive as the company scales its offering of related services. “
All of this prompted Helfstein to start his OPEN reporting with a bullish call. With its price target of $ 34, stocks could gain 23% over the next twelve months. (To see Helfstein’s track record, Click here)
In total, OPEN issued 2 buy-side ratings in the last few weeks. These are partially offset by a single hold, making the analyst consensus a moderate buy. OPEN shares closed at $ 27.70 today and have upside potential of 17% based on the average price target of $ 32.50. (See OPEN stock analysis on TipRanks)
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Disclaimer of liability: The opinions expressed in this article are solely those of the analysts featured. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.