Disclaimer: I am not a financial advisor pay no attention to anything I write etc…
We have finally entered 2021 with the country in the darkest depths of the corona virus and the markets quite literally at all time highs being led in 2020 by the Nasdaq gaining 43% in the past year and up nearly 80% from the March lows, investor sentiment is reaching highs only seen twice in modern history based on % of margin debt and those highs were right before the crash of 2000 (the dot.com bubble) and the crash of 2007 (Financial Crisis
It seems according to most intelligent analysts of the markets that i’ve come to trust over the years one of two scenarios will play out in Q1 of 2021
Scenario 1.
A massive correction across all markets.
Judging by all historical charts and given that evaluations are very significantly overvalued by all metrics a corrections does seem imminent. This is true even if the vaccine roll out goes as planned and heading into Q2 we are looking at a full reopening of the economy. The market has proved in 2020 more than even that it is forward looking, rising to new highs as world economies shut down and unemployment rose to unheard of levels. How much upside is left in the markets? Numerous times in the last few months positive vaccine news appeared at many times to save the overnight futures down a few hundred points and set us for a week of green days. Those headlines won’t move the markets anymore. The pending pullback in the markets can also be greatly exacerbated by the latest trend of “robinhood” retail traders as they witness their first strong pullback since they loaded up in the march lows. If they run for the hills and don’t return after getting wiped out a pending correction can last longer then previous ones.
Scenario 2.
The face melting rally continues burning shorts as the stock market runs into the stratosphere.
With interest rates parked at 0% FED’s unlimited QE policy remaining in place and vaccine rollout moving us closer to full reopening, sentiment rises even higher than ever and the bull market continues to make new highs. A healthy pullback will come eventually but not in Q1.
Over the last few weeks i’ve read and listened to intelligent analysts of the market describing one of these two scenarios and honestly I don’t feel confident either way. Many of the most confident voices in a pending major correction have lots of support from their thesis citing the dot.com bubble among other seemingly similar examples. Most of these people also have been shorting Tesla and trashing bitcoin as a terrible investment for years and the truth may definitely be that “stocks don’t care about your fundamentals”.
Given the current climate and my personal uncertainty its difficult for me to have a very high level of confidence going heavy in this market in my mind a massive pullback seems just as likely as bear crushing rally.
It would be easy for me to tell you to play defense buy some gold or silver. Or what about the bank stocks they seem to be finally trending the right direction….but that…that’s boring if your like me your not in the market to 5-15% by end of the year, I am looking to make 25-100% in this quarter so to find the upside I crave I have to look somewhere else…
Re-Opening Plays
Logically when thinking of where to find big upside with minimal downside ones mind would jump to the reopening plays, if these beaten down stocks can squeak out of the pandemic without being on the verge of bankruptcy (R.I.P AMC theaters) they should make a very solid move with the vaccine roll out.
The problem with that is that most of the “re-opening plays” have already doubled or even tripled of their march lows which definitely caps their upside and makes them just as susceptible to any pullback we see in the markets
For example take a look at Dave & Busters stock PLAY
The stock has already doubled from $15-$30 in the last two months
The best case scenario which would likely be the stock getting back to the $40 range.
That’s the best case scenario that’s not the type of return i’m looking for as my best case scenario.
Another Example Hyatt hotels certainly a company that’s been destroyed by empty rooms and shutdowns worldwide, you would think that would make a great re-opening play perhaps it can get back to its 2019 levels….
WRONG it is already trading back at its 2019 levels
As you can see clearly on the chart Hyatt has already regained that 70-80$ area which it has traded in most of 2019 if worldwide reopening’s go ahead in a best case scenario we can see what another 10$ pop in this stock as a best case scenario? not good enough for me.
What about restaurants? Not the take out ones those likely did okay during the pandemic like the sit down buffet style restaurants the olive gardens of the world well that’s owned by Darden restaurants which has olive garden and other similar types of restaurants under its ownership surely that stock is massively beaten down and maybe just maybe if we see a return to normalcy we can see a nice move in the stock…that’s what your thinking right? so was I? But take a look at this chart…
DRI has already gone up 300% from the march lows and is trading right now back where it was trading before co-vid 19 ever existed.
The overall theme i’m trying to point out over here is that most of these re-opening plays are already trading near they’re pre pandemic highs greatly capping their level of upside moving forward and also facing substantial risk if there is any market pullback or if the vaccine rollout doesn’t go exactly as planned.
So with overall markets uncertain defensive or safe plays unappealing to us and the re-opening plays seemingly already played out where can we look to in the market for a chance at massive upside without putting our money at great risk?
Pre-Merger SPACs
[From here on out we will be discussing SPAC stocks and their Warrants. If you are unfamiliar with how SPACs and their Warrants work you can check out the links below or just google it]
In this current state of market uncertainty I think finding quality strongly managed SPACs that have yet to find a merger offer to biggest upside with very limited downside as long as the SPAC is trading below 11$ and the warrants are cheap.
The most important thing to note about SPAC stock is the shares have intrinsic cash out value of 10$ (sometimes it’s a little more but it gets complicated). That makes buying SPACs trading slightly above NAV a very low risk option if you have a very high quality team on the SPAC, and as we have seen this past year if the SPAC manages to get a LOI with a company anyhow connected to EV or a strong acquisition you can see almost immediate gains of 25-200% in the commons and 50-400% gains in the warrants.
The Problem With Pre-Merger SPACs
As knowledge of this little “secret” of investing in pre-merger SPACs has become more well known in recent months we have seen a lot of the superstar SPACs prices go way past our 11$ threshold we’d like to get in at, with some even trading above 13$ pre merger take a look at BTWN VGAC QELL IPOD IPOE IPOF PSTH If we want max return with little risk these SPACs with strong management teams are simply just priced too high.
SPAC Headwinds for 2021
Another issue with these SPACs and most SPACs in general is due to the insane amount of SPACs filed this year and the list of new SPACs literally gets longer by the day we will have a new problem, the amount of quality of the acquisition targets has become greatly lowered. With all the exciting private companies looking to go public via SPAC there are now 15-20 SPACs knocking on their doors. Unlike early 2020 when there were only a handful of SPACs out there. This means that it will be harder for SPACs to land quality targets at the rate we’ve seen this past year and undoubtedly there will be a number of SPACs that will not succeed in finding a merger, therefore although there is low risk in the less than stellar SPACs trading near or below NAV the upside is lower, and there is no timeline as to when or if the company gets a merger candidate. My focus is to able get a strong return in Q1. It is not appealing to me hold on to a Pre-Spac company and hope.
So the perfect play in my mind would be to find the following
A Quality Managed Pre Merger SPAC looking for a “sexy” target
SPAC trading below 10.50 to lock in very minimal risk
Have strong idea that A merger announcement will come in Q1
Somehow be able to avoid the Headwinds of intense competition among SPACs which we will see in 2021
Sounds impossible to find?
I think i’ve unlocked the key.
SPACs focused on the European market
Although the competition among SPACs with the most attractive targets is tough that’s only in the United States where a great majority of the SPAC teams are located and target companies. The European market has largely gone untapped. Also there are some amazing management teams on these SPACs yet the price of the SPAC is still low because most investors simply aren’t aware of of our the status and power of the people behind some of these Euro based SPACs. These Euro based SPACs also have a leg up on the competition from the US given travel restrictions it’s difficult to get face to face and these private companies will likely go to well known and trusted teams from their country before merging with strangers in the U.S they have never met.
Take the most recent Euro Spac Merger announcement of CIIC merging with Arrival the stock went from 10$ to over 30$ within days. The upside with euro SPACs is just as high if not higher as the most sought after u.s based companies.
So you are probably thinking okay Euro Spacs have a higher chance of getting high quality target etc…but I don’t want to sit on my money for months on end waiting for something to happen…that’s exactly what I had been thinking until this in my mind bombshell article from reuters dropped last week
Euro SPAC Craze Around the corner
The main highlight from this Reuters piece is “At least 10 European SPAC deals are in the pipeline, Reuters reports, set to raise some $3 billion.“
If you haven’t been following along this year Reuters has a literal perfect track record on all SPAC “rumors” they report.
They hinted at this also in earlier this month also.
Europe set to tiptoe into SPAC-land as shell company deal pipeline builds
The pending EURO SPAC explosion has also recently been reported in several other reliable euro finance sources linked below
Spacs may fuel European IPO boom
Putting The Pieces Together
So lets just put this piece together If there around 10 European SPAC deals set to be announced in Q1 (which is a fair time frame given the first reports of this pipeline were in early December) and spactrack.net lists of the over 250+ SPACs out there just 7 are euro based and with explicit targets in Europe what then are the chances that of those 7 SPACS the top 2 EURO spacs are apart of the 10 euro spac deals that are already in the pipeline as of a month ago? I think it is very very high chance that these top EURO spacs are apart of this reported EURO pipeline so we can have fairly high level of confidence that a merger comes soon.
This leads me to believe that the safest area in the entire market to invest that offer the largest near term upside is in the Pre-Merger SPACs that are targeting acquisitions in the largely untapped Europe market.
Which European SPACs to target?
When digging deep into the European SPACs there were four that really stood out but of the four there were two SPACs that stood out to me head over heels as being the best targets and luckily for me (us) both SPACs are trading near 10$ and the warrants are still cheap especially relative to the latest high demand for quality SPACs warrants
So now lets get to what I feel are the two safest stock you can buy that give you room for massive upside….
IMPX - AEA-Bridges Impact Corp ($10.10)
So even from the outset this seems like a great euro based SPAC they raised 400 million and have reputable names on their board and are specifically targeting a ESG company. But it gets better and that is if you look into it’s CEO Michele Giddens. She is quite literally one of the leading if not the leading figure in social impact investing in all of Europe. She co-founded Bridges Fund Management which invests in four core themes: Healthier Lives, Future Skills, Sustainable Planet and Stronger Communities. To date, the company has raised over £1bn in capital and made more than 160 portfolio investments across these four strategies. Bridges other founder is Sir Ronald Cohen who is known throughout Europe as “the father of social investment”. Point is when its comes to ESG companies in Europe there is likely nobody better connected, better experienced, and with a better reputation through Europe than Michele Giddens.
There are plenty of very high quality private ESG companies that would fit nicely with IMPX 400 million dollar fund NorthVolt or BritishVolt are some of the most exciting names speculated to be in search of a SPAC.
I have a very high level of confidence in Michele and IMPX as a whole. I strongly feel that it is very likely one of there deals is a part of the 10 deal pipeline mentioned in the Reuters article. Buying the stock at this level virtually has zero downside with what I think I’ve made a compelling case that they announce sometime in Q1 a high quality acquisition target in the ESG sector it is very likely depending the company to see a 20-200% jump in stock price after news of merger target is announced or leaked (by Reuters)
AVAN - Avanti Acquisition Corp. ($10.28)
The first thing that really sticks out about AVAN is that it is by far the raised the most money from all the EURO SPACs they originally raised 500 million then recently filed to upsize the spac up to 600 Million dollars. That tells me they know what they want and they are willing to raise more money to get it. Also they were the first of the Euro based companies to enter the SPAC market which makes me even more confident that they are apart of the 10 spac euro pipeline Reuters reported.
CEO Nassef Sawiris is the richest man in Egypt and of the 200 richest people in the world to date with a rapidly growing net worth of 8.1 billion dollars. Needless to say the more you dig into Nassef you will find how he is one of the most well connected people in the world and a prolific deal maker he just last month purchased a 5% stake in MSG Sports
The director of AVAN SPAC is Colin Hall who is the head of investment at GBL. GBL has very strong footprint in ESG companies in europe. The GBL website even has a whole section devoted entirely to its passion and commitment to invest in ESG companies. Including investments in very attractive spac targets such as NorthVolt which currently has 300 new job openings on their website which undoubtedly will require additional funding for the fast growing battery maker.
AVAN has a website that has detailed profiles of it’s management team if you want to dig deeper on your own time into the many connections of its management team.
The more you dig into the management team in this company you will see they are by far the wealthiest and most prominent well connected Euro SPAC out there.
It's therefore not a surprise that AVAN was recently added as a core position of in the new SPAC ETF which focused on SPACs with highest quality management teams such as RBAC.
Buying the stock at its current price again offers you very very minimal risk with a 10$ floor, and given the facts previous mentioned it is by far the largest ($600 Million) and earliest euro based SPAC the odds they announce a very high profile merger candidate in Q1 are in my mind very high.
I’ve also added below is a DD image I saw someone posted on the AVAN board on Stocktwits.com
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Summary: High quality large pre merger spacs trading near NAV focused on the European market in my opinion are the safest investment you can find in the market that offer huge upside in the near term. AVAN and IMPX to mean stand out head and shoulders above any other SPACs targeting the European Market for the reasons mentioned above.
Disclosure: I own common shares and warrants of both IMPX and AVAN. I was not compensated by anyone in any way to write anything here