According to Investopedia, a SPAC or special purpose acquisition company “is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.”
It means these companies are formed for the purpose of acquiring other firms. They have no business operations and might not even have any acquisition targets at the time of their IPOs. According to SEC rules, SPACs need to complete an acquisition within two years or return the capital raised to investors.
In 2020, there are over 180 SPAC stocks listed on the U.S. exchanges and raised $65 billion, indicating an average listing size of $361 million. As the layman investor is not aware of SPAC IPOs, retail participation has been limited in these verticals.
Here we look at four SPAC stocks that you can keep an eye out for right now.
1. DraftKings
The first stock on the list is DraftKings (NASDAQ:DKNG), a company that went public post a $3.3 billion merger with SPAC Diamond Eagle Acquisition, in April 2020. DraftKings stock has since rallied an impressive 150% since the acquisition, easily crushing market returns.
DraftKings operates as a digital sports entertainment and gaming company in the United States. The company provides users with daily sports, sports betting, and iGaming opportunities. It is also involved in the design and development of sports betting and casino gaming platform software for online and retail sportsbooks, and casino gaming products.
In the last few months, DraftKings has announced a string of partnerships in the sports-betting business. With a forward price to sales multiple of 36x, the stock is expensive but it's also forecast to grow sales by 54% in 2021 to $847 million.
Further, several states in the U.S. are expected to legalize sports betting in the next few years which increase DraftKing's addressable market at a fast clip.
2. Fisker
One of the hottest sectors in 2020 is the electric vehicles space. Shares of Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) have generated multifold returns and investors remain optimistic about the transition towards EVs in the upcoming decade.
The company went public via a SPAC merger in October and has doubled since October 23. Fisker, designs and manufactures electric vehicles and mobility solutions. Recently, Citigroup (NYSE:C) began coverage on the stock with a buy rating and a 12-month price target of $26 per share.
According to Citigroup, Fisker’s asset-light business model where it leverages the expertise of third-party manufacturers instead of building an integrated manufacturing facility will help it generate higher profits compared to peers.
Investors should note that the company is yet to sell even a single automobile and is likely to debut with an SUV called Fisker Ocean in 2022. The base price for the SUV is expected to be around $38,000 and Citi is also bullish about the $1 billion it raised during the merger which will help it pump in capital to invest in growth and research.
3. Virgin Galactic
The third company on the list is Virgin Galactic (NYSE:SPCE), an integrated aerospace company that develops human spaceflight for private individuals and researchers in the United States. It also manufactures air and space vehicles. The company's spaceship operations include commercial human spaceflight, flying commercial research, and development payloads into space.
In addition, it engages in the design and development, manufacturing, ground and flight testing, and post-flight maintenance of spaceflight vehicles. Virgin Galactic stock went public in 2019 via the merger with the Social Capital Hedosphia SPAC.
SPCE shares are up 130% year-to-date and reported a loss of $0.34 a share compared with consensus estimates of a loss of $0.26. During the earnings call, the company confirmed plans for its first suborbital test flight.
CEO Michael Colglazier said, “This will be the first-ever human spaceflight conducted from New Mexico," with a follow-up planned for the first quarter of 2021. The company is continuing plans for its first commercial launch, with plans to reopen ticket sales after founder Richard Branson's flight sometime in 2021."
Virgin Galactic is clearly aiming for the skies and is planning about 400 space flights each year which will generate close to $1 billion in annual sales. Space travel is a very nascent industry and people did not even think about it till a couple of years back.
It is a high-risk investment but with massive risks comes the opportunity to derive significant returns.
4. Workhorse
Workhorse (NASDAQ:WKHS) stock has gained an impressive 800% in 2020. It’s a technology company that designs, manufactures, builds, and sells battery-electric vehicles and aircraft in the United States. It also develops cloud-based and real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency.
Workhorse’s flagship products, the C-Series Workhorse, an all-electric step van, and the HouseFly delivery drone indicate massive business opportunities as more businesses adapt to the new normal amid the COVID-19 pandemic.
Workhorse CEO Duane Hughes expressed optimism on this note and stated, “We feel strongly that all Workhorse electric delivery vehicles, with their integrated drone capabilities, are the most economical and efficient last mile option currently available, making our solutions a necessity now and for future critical applications.”