A rotation from tech back into slightly more conservative, cyclical, or beaten down names continues. The pace has slowed, but it still exists. The chase for low float, new driven names hasn't changed. The only thing that has changed is the market has moved from electric vehicles and special acquisition purpose companies (SPACs) to online education names. That's the flavor of the week and we're seeing everything from fundamentally intriguing names to sub-penny trash run 25%, 50%, or 100% on the thesis that online education is here to stay and everyone in the sector will be a winner. The other area is tiny biotech with anything Covid-19 related. At best, we'll see one of these actually remain a winner. Most will be a flash in the pan higher, then do an offering (I hope for their sake) before they fade into the shadows from whence they came.
Don't interpret this as me saying not to trade these.
The question for me now becomes: can we rally without the big tech names? Can we rally without FAANG?
Of course, we could, but will we?
I'm not so sure. The potential for a vaccine will juice the names oversold in the short-term and help the Dow and the S&P 500, but weigh on tech. The problem I envision arising is the promise of a vaccine is very different than the actual deployment of the vaccine. It might create optimism, but it won't create a surge in non-tech related business this summer or this fall. We're seeing schools pushing more online to start the year which will strain some working families. I imagine budgets will remain tight. Additionally, don't expect tourism and travel or even sports to get rolling soon. Add in some hesitation on another round of stimulus and we have the setup for a flat market, at best probably, or a decent pullback.
It's one of the reasons I'm parking some of my cash in new SPACs that don't have a deal yet, have good management and/or a track record of real success, and have a stock not trading much beyond the cash value held in the SPAC trust. If they don't get a deal in their allotted time frame (often 18 to 24 months), then my losses should remain limited.
The thing is I'm not thinking 18 to 24 months. I'm looking at using these vehicles as potential upside with limited downside when the market could get rocky. There are four names I've added.
Jaws Acquisition (JWS) - This one has Barry Sternlicht at the helm. After his success with Starwood and Starwood Capital, it's hard to imagine any deal will be a dud.
Conyers Park II Acquisition (CPAA) - This team hit a home run with their first Conyers Park SPAC acquiring Atkins Nutritionals to create The Simply Good Foods Company (SMPL) . From summer 2018 to summer 2019, the shares in SMPL doubled. I'd expect another food play here which aren't usually the biggest winners but have been consistent upside for SPACs after the deal is announced. Even Utz managed to score a solid push higher.
Social Capital Hedosophia II (IPOB) and Social Capital Hedosophia III (IPOC) - The first SPAC brought us Virgin Galatic (SPCE) , arguably one of the most fun SPACs we've seen this year. It paved the way for the crazy action in Nikola (NKLA) . IPOB is looking domestic while IPOC will likely be an international name. Both of these SPACs have big trusts with IPOC being roughly double the size of IPOB. With Chairman Chamath Palihapitiya at the helm, I wouldn't bet against these SPACs. Whether you think the market is heading higher or lower, I would own both and be patient.
