Clean Energy SPAC Portfolio Update
20th Edition. Tough month for clean energy SPACs. Investment strategy changing.
Welcome to the 20th edition of this newsletter. I hope you like the move to the new platform as much as I do. It makes it easier to get quality information to members and for you to share editions with your family and friends (if there is something worth sharing). In fact, I can place a share button right here to make it easy to do.
And if you are reading this from a share, I can place this cool button below to allow you to subscribe. No worries.
Couldn’t do that in the previous email versions of this newsletter.
July Performance Table
Ok, enough procrastinating. Let’s get down to the portfolio performance. Yikes! 13% loss in the clean energy SPAC portfolio in July compared to the S&P 500 up 2.3% and NASDAQ up 1.2%. Small company stocks and the clean energy ETF were both down about 3.5%. Bottom line: large companies held up and gained, small companies and speculative stocks lost in July. We’ve been taking a more conservative approach in recent months, but there was no hiding from these losses.
De-SPACing Let Down
One interesting trend noticed in the last few months is that when a SPAC and its target go through the de-SPACing process —> i.e. shareholder vote confirms the target and the company begins trading on its own (no longer considered a SPAC) — the stock price is getting hammered. Look at these nine clean energy companies that de-SPACed in July. Each one of them traded significantly lower on July 30th than where they were as a SPAC on June 30th close price. If you bought $1,000 of each one at the end of June, the total investment would be worth 22.7% less at the end of July.
Five of the nine tickers are trading under $10. Apparently investors believe the valuation of the company set by the deal team was too high. In addition, it seems that investors are waiting until the company trades on its own and has issued a quarterly report or two before deciding to put their hard earned money into the stock. This is a valid and reasonable way to evaluate companies. No more oversized, speculative gains that we experienced in 2020. It is a totally different game now.
Announcement of Targets
We had seven SPACs announce their company targets to be taken public in July. Note that the past month’s performance was close to zero —> from a loss of $0.30/share to a gain of $0.10/share and all tickers are trading between $9.81 and $9.91. If you like any of these companies, wait until a couple weeks after de-SPACing to take a nibble on the shares. When will de-SPACing happen? In the 17 deals de-SPACed since April 1st, the average is 158 days between announcement and de-SPACing, or about five months, so these will likely trade on their own tickers around Christmas (who would mention Christmas in July?)
The largest company of the group is Aurora. They are valued at over $10 billion, have 1,600 employees, and are dedicated to delivering autonomous/self-driving trucks. Also note that they don’t expect revenue from operations until 2024! A little pricey for me (being that it is pre-revenue), but maybe if they trade under $7-8 it could be worth a shot.
Investment Strategy Changing
The real question is whether there is an opportunity here. Later in the month on this platform, I will dig on this question and what I’m currently doing in my personal clean energy portfolio. For now, know that there is no rush to get into any of these stocks. We are on a downward trend and the price behavior of pre-announcement and pre-de-SPACing means we should wait. Let the company’s executive team have a quarterly report or two to see if they have a vision and one they can really execute on. If this sounds more like how the real stock market works, you are right. We want to find solid companies on a mission and an ability to deliver. The growth rate of clean energy through the 2020’s is projected to be over 20% per year, so it will be worth picking the right companies.
The area where I am buying is on these beat down stocks that are trading below $10 as long as I like them for the long-term (at least 2 years and out to 2030). Microvast $MVST is a good example. This company has over $100 million of annual revenue now, developed a leading battery technology, and got beat down to $7.92. I picked up some shares over a couple weeks in the $8.03 to $9.23 range. It closed on 7/30/21 at $9.11 and like this one for long-term.
More to come on this subject in a later edition this month.
Database of the Clean Energy SPAC Portfolio
The first table lists the 36 companies that have Transitioned (de-SPACed). The list is sorted by performance for the month of July. The “Performance” term is definitely used lightly here as only one stock, MP Materials, gained during the month and the average decrease overall in July was 20% on these companies. Maybe some bargain hunting is in order.
The next table is of the 25 SPACs that have announced their clean energy company targets. Note that a majority are trading just below the $10.00 initial price of the IPO offering. This likely means that when these companies de-SPAC, they will trade further below $10. This is when we will need to figure out which of these companies are real and will provide the extra return we are looking for throughout the 2020’s.
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Until next time. Do something good for the environment. Take care.
Dan Tarrence
This is for educational and entertainment purposes only. It should not be considered financial advice. See a financial advisor for investment advice. If you want to be taken off this distribution list, please let me know.