Trump is good for SPACs? It seems to be the case in the latest news on his idea of striking back against Big Tech.
Trump Media & Technology Group (TMTG) going public through a SPAC
Trump wants to start his own social media company. The first product will be an app called “TRUTH Social”. Trump, the CEO of TMTG, said TRUTH Social is being established “…in order to stand up to the tyranny of Big Tech.” On October 20th, Digital World Acquisition Group (DWAC), a SPAC, announced TMTG as their target to take public. $DWAC was trading at $9.96/share on 10/19 and rocketed the next day to close at $45.50, up 356%. The next day, the stock broke all records of highest share price for a SPAC hitting (I’m sure we hear our former President mention this fact once or twice in the future) $175/share before closing at $94.40. And the app won’t be out until Q1 of 2022. DWAC closed the month at $67.75.
SPACs are Back, Baby
The weird thing is that the hype surrounding DWAC, and the almost 500 million shares traded in one day, brought a lot of attention back to SPACs in general. I guess being able to 10-15x your investment in 2 days is appealing for some people. Several other SPACs, or former SPACs, had quick rallies that paid investors if you entered at the right place and was quick to take profits. On the 26th, LIDR went from $4.30’s to hit $9.19 in trading before moving back into the $5’s. BKKT went from $8.03 to hit $37.49 on the 25th and is now back to high $20’s. I don’t suggest trying to cash in on making these short term trades as most of us will be late in buying, and selling, which results in losses. But there is more money moving back into SPACs and that is good for prices and building confidence in the sector.
Welcome to the end of month edition of the Clean Energy SPAC newsletter. Subscribe now to get it sent directly to your inbox each month.
End of October performance
After a difficult September, the stock market indexes performed strongly in the month of October with the S&P500 up almost 7% and the NASDAQ up over 7%. The Russell 2000, representing small cap companies, trailed the larger companies, but was still up 4.3%. The big winner last month was the clean energy ETF (QCLN) which was up 23.7% as the Infrastructure and Reconciliation Bills details became more clear and moved closer to a vote. Clean Energy SPAC portfolio was up nearly equal to the broad market gaining 6.8%. The hand selected stocks on 1/1/21 that established the “mini-portfolio” was only up 2.1% and is underperforming the general portfolio. This shows the need for a more active SPAC portfolio which will be part of the 2022 game as there are a couple of duds in the initial selection (i.e. TMC, which is now trading under $3).
Re-Visit "SPACtober” Criteria
In the last edition of this newsletter, I suggested that we were forming a bottom in the SPAC and clean energy markets making for a lower risk time to buy-in. Four criteria points were laid out to signal this turnaround. Let’s take a look on the progress over the past 10 days.
Momentum of stocks in the clean energy industry. The QCLN ETF, representing the industry, has broken out of a long consolidation period since March and is up 28% since October 6th. Check.
Status of the Infrastructure and Reconciliation Bills. In the days since the last edition, Biden outlined a $550 Billion commitment to clean energy and the Bills seem close to being agreed upon by Democrats, but they are not passed yet. See the categories of budget allocation below. 1/2 Check.
Time distance from de-SPACing. This one takes longer than 10 days to work itself out. Even though I suggested a one-year time frame from de-SPACing, the question is really, “Does the investing public still consider this company a SPAC, or has it moved beyond that categorization?” One could argue that companies like STEM (6 months) and ChargePoint (8 months) are trading on their own accord and have moved past the SPAC hangover. 40% check, but gaining each week.
Individual stock quarterly progress. This criterion helps in picking out the specific individual stocks for the portfolio. Many of the clean energy SPAC companies will report their third quarter earnings in the first two weeks of November. So this will become more clear as those companies report and meet, or don’t meet, expectations. No check yet.
I remain committed to investing in clean energy for the long term, but also now believe it will also outperform the broader market in the short term with one caveat. If the Reconciliation Bill ends up not being passed, it is likely that the clean energy stocks would retreat on that news.
De-SPAC, de-SPACed, Transitioned, hmmmm…what’s the right term?
I’ve used a couple different terms to describe when the reverse merger happens between a SPAC and the targeted company. This is when the company begins to trade as its own ticker and needs to stand on its own. The industry uses De-SPAC (de-SPACed, de-SPACing) and I’ve also categorized these companies as “Transitioned” companies. But recently I heard a new way to describe them that I think I’ll use in the future. I will begin to refer to a de-SPACed/transitioned company as a Former SPAC, because officially it is no longer a SPAC.
In October, there were three companies that are now Former SPACs (sorry that the table is still termed ‘transitions’, but I’ll get that fixed next time). The companies include Wall Box in the EV charging space, ESS Tech for longer term, grid connected batteries, and Navitas Semiconductor. I especially like ESS Tech as the technology is low cost and uses abundant materials of Iron, Salt, and Water (versus rare earths) to make a long lasting and safer battery than lithium-ion. ESS is a manufacturer of long-duration iron flow batteries for commercial and utility-scale energy storage applications. It is trading much higher after becoming a former SPAC, so am waiting on it to come down in price before investing (hope it gets there).
There were no new announced clean energy company targets in October.
List of Former SPACs
Below is the list of all 49 clean energy Former SPAC, clean energy companies sorted by their returns during the month of October. Notice that the top two are from de-SPACed in October firms. This is a very different situation from what we have experienced since February. Another signal that the SPAC is Bac(k).
Lucid Motors had big news this past weekend as they delivered vehicles to customers for the first time. Five hundred vehicles beginning on October 30, 2021. LCID stock price has moved faster than its vehicles go from zero to 60 mph, appreciating 158% from its low on September 1st to its high on October 29th. In the short-term, I expect it to close a gap at $50, but then could experience a period of correction.