Stock Market

Opinion: With SPACs down as much as 90%, there are finally some good buys

It seems that all year I’ve been warning about valuations being out of whack with reality, especially in small-cap tech, which includes most SPACs.

SPACs are being slammed as former “diamond hands” turn into weak-handed sellers who are (rightly, in most cases) trying to stop losses that are piling up in their portfolios.

Speaking of SPACs, the markets are still suffering from SPAChaustion and a Coinbase Overhype Top. Most, if not all, SPACs are down big from their recent highs, as evidenced by this chart:

Remember the past few weeks when I kept saying that Virgin Galactic
SPCE,
+1.89%

should do a secondary to raise a half-billion dollars or more when the stock was up near $60? The company didn’t, and instead we saw the chairman and then founder unload their bets on this stock.

Our other SPAC stocks, which we trimmed aggressively at much higher levels, are down big from their own highs. In fact, we are still up big on our remaining SPCE that we bought when the stock was at $8 or so. I’m going to hold those shares, but I don’t plan on buying any more SPCE common stock until they prove they can start getting to the low-altitude “space” they’re trying to get to. On the other hand, I do like some of our other SPAC stocks, as noted below, as you’ll see.

Meanwhile, here’s a chart that shows the Goldman Sachs Financial Conditions Index that, as the bank says, is defined as “a weighted average of riskless interest rates, the exchange rate, equity valuations, and credit spreads, with weights that correspond to the direct impact of each variable on GDP”:

For two decades now, I’ve rightly explained how investors should actually do the opposite of the old “don’t fight the Fed” saying. I even wrote a whole mini-ebook about it for subscribers a few years ago. Here’s a chart from that book that shows why:

So I wondered how the the market bubbles and crashes would overlay with the Goldman FCI to see if there were any insights we could glean. Here’s what I put together:

Avoid the indexes

And here’s what I think I learned from that chart: It’s probably not a good idea to load up on stock market indexes when the Goldman Sachs Financial Conditions Index chart is at all-time lows.

On the other hand, my mind keeps going back to that first chart at the top of today’s report, that SPAC crash list of stocks. And with so many stocks down 30%-90%, there’s going to be some good buys.

Yes, there are some SPACs that are literally down 90% from their highs. I predicted that Nikola NKLA would drop at least 90% from its highs a few months ago. As of today, with NKLA around $10, down from its $93.99 high last year, well, it’s basically down 90% from its high. I’m still short a few shares of NKLA in the hedge fund, by the way.

But away from NKLA and other similarly questionable-at-best companies that came public in the now-popped SPAC Bubble, there are probably some good buys. I’m hard at work digging into some of my favorites to see if they’re finally at levels that I find attractive. But as always, I’m going to be very selective in what I end up investing in, paying attention to the company’s positioning and ability to create trillion-dollar economies in new sectors while making sure we don’t overpay at any valuation.

Space is the place

Even though it seems like space stocks never go up, my favorite sector to invest in for the next five or 10 years remains The Space Revolution. My favorite space stocks remain SpaceX, then followed by RocketLab
VACQ,
+0.95%
,
then followed by BlackSky
SFTW,
-0.15%
.

Understand though, that we are very early in the first inning of The Space Revolution and we should expect that it might be a year or two before the markets catch up to the trillion-dollar industry that Space will become in the next five years or so.

Then again, you never know when the markets will start to price in the trillion-dollar marketplace, as I used to explain when we started buying Tesla
TSLA,
+0.87%

at $50 a couple years ago before it fell to $40 and then suddenly went from trading at one times forward sales to eight times forward sales as the market started to price in the trillion-dollar future of the electric vehicle industry.

I might have to cull the portfolio before adding too many more names though, so be prepared for that too. Be careful out there, but don’t fear this market action as our playbook and analysis continue to help us do our best to take advantage of the pitches the markets are throwing.

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