Should we have sold in May and "gone away"?
Clean Energy SPAC Portfolio End of August 2021 Update (6 minutes)
“Sell in May and Go Away?”
The essence of this quote is that equity traders would be better off taking their money off the table and enjoy the summer. Why play the market when you can go on vacation? Michael Patterson’s beautiful art work below makes a great argument for the vacation scenario.
the art above is an original painting by Michael Patterson whom we met last weekend. for more information, contact Lily Pad Gallery in Milwaukee, WI: Clouds Above the Sound
So did it work this year? Should we have sold in May and gone on vacation instead of holding onto our stock portfolio. Let’s take a look. The S&P500 and NASDAQ returns for June/July/August were an amazing 7.6% and 11.0% as each index made new highs. However, the clean energy SPAC portfolio lost of 10.3% in this summer including a 5.8% loss in August alone => so the answer to our question on our SPAC holdings is a resounding YES!
The performance table below shows our returns in August and compares to index benchmarks. The broader market moved to new highs, while the small company index and clean energy ETF had smaller gains in past month. As mentioned, the clean energy SPAC definitely underperformed.
The cash balance in my personal account reduced by more than half in August ==>> I was a big buyer of these “on sale” clean energy SPACs. For more information on my current investment strategy, read the last newsletter post, “SPACs are risky. What’s the plan now?”.
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Spotlight: Battery Sector
New this month: A section in the newsletter focusing in on one of the clean energy and sustainability sectors. First industry to get the “Spotlight”: Battery sector.
Batteries are the foundation of the electric vehicle movement and strengthening of the electric grid as more renewables come online. Battery cost have decreased by 86% over the past decade which is driving market adoption. The growth in the electric vehicle and energy storage markets are each projected to grow at rates between 20% to 40% compounded annually (CAGR). At a midpoint of 28% growth between 2019 and 2040, the market will grow to 176x the original size. Hence, the significant interest in investing in these companies.
Lithium-ion batteries hold a majority share of the EV battery market. However, one of the concerns with Lithium-ion is the use of rare earth materials to build the battery including (besides lithium), cobalt, nickel, and manganese. In the MP Materials investor presentation, they suggest that motor technology is well-settled, but the most efficient battery chemistry for EVs is still unknown. Hydrogen fuel cells will be a topic for another day.
Battery chemistry and innovations include solid-state, Li-Metal, silicone added to the anode, producing batteries with little or no cobalt and nickel, and more. Picking winners is difficult at this point and each EV manufacturer wants its own battery type to promote differentiation over its competitors. Standardization in batteries does not look to be the future, at least in the next few years.
There are large firms like Panasonic, CATL, Samsung, LG Chem, and BYD competing in the battery technology industry. Telsa, for instance, partners with Panasonic on a proprietary battery chemistry for Telsa vehicles. But there are many smaller firms bringing innovative ideas and products into the space. In the clean energy SPAC portfolio, we are tracking eight such companies, five of which have de-SPACed and three more planning to transition before the end of the year (see table below).
The largest by market cap is QuantumScape which received a lot of hype as its solid state innovation technology could be the future. Although its being proven in pilot demonstrations, it is not yet proven at scale. No revenue expected until 2024. Since many of the companies on this list are pre-revenue, there is significant early stage investment risk. There is also potential for above market returns by picking the winners.
Spotlight inside the Battery Spotlight: Microvast (MVST)
Of the eight companies highlighted in the table, the one that I’ve been accumulating shares in is Microvast (MVST). The main reason is that it has projected revenue of $145-155M in 2021 with $1.5B of contracted orders. They have over 28,000 units installed, partnered with Oshkosh Truck on the USPS truck win, and has strong relationships with customers in China which is way ahead of U.S. in EV adoption.
The stock traded under $8 per share in early August post de-SPACing and currently is at about $9. MVST’s 52-week high was hit in mid-February at $25.20. Adam Jonas, an analyst at Morgan Stanley, recently issued an “underweight” recommendation with a price target of $6 per share siting stiff competition and that it must diversity its sales base outside of China. It is not all rainbows and unicorns.
As long as I keep my average cost per share in the $9 range and understand that this is a long term investment, I like it’s position in my clean energy SPAC portfolio.
Would like to add one more battery company from the list, but have not yet decided which one to “bet” on. More due diligence is definitely needed. Let me know if you have any insights.
August Transitions / de-SPACings
In last month, six clean energy SPAC companies transitioned and all are trading under $10 per share. Hence, the reason there is no rush to buy SPACs until after they issue their first quarterly report to analysts.
Market segments of the companies include battery recycling, lidar, EV trucks, EV charging and renewable energy. The one company where I’ve started to accumulate shares is Li-Cycle (LICY), a battery recycling firm. Only $12M of revenue forecasted for 2021, but battery recycling will become a very important part to the supply chain for rare materials in the 2020’s.
New Announcements of Company Targets
There were three SPACs that announced new targets in the clean energy space; two in EV Charging and the other in Lidar systems. These are two sectors that are getting crowded. I count eight (8) companies in the Lidar sector and nine (9) in the EV charging area coming public through SPACs. Yeesh!
The three in the table below are all trading in the $9.90s but will likely trade well below $10 upon de-SPACing. None of which are making the cut to my investment portfolio at this point. Maybe I’m just burned out at reviewing Lidar and EV charging investor presentations.
The Total List of Clean Energy SPACs
There are 43 companies that have transitioned (de-SPACed) to their own ticker. In addition, there are another 24 companies announced as SPAC targets in the clean energy space. Therefore, we will likely have at least 67 companies transitioned to there own ticker by the end of the year.
To reiterate my plan for those new to the newsletter: I am tracking and reporting on a portfolio that holds equal amounts of all clean energy companies coming public through SPACs. But more importantly (to me anyway), I am building a new portfolio to be fully invested by the end of 2021 with only the best and brightest of the de-SPACed tickers, which I hope to narrow to 12-20 stocks. The investment timeframe is 1/1/2022 through 1/1/2030 with a goal of 5x the initial investment. It will be actively managed and reported on monthly in this newsletter starting in January.
Below are two tables: 1) Transitioned companies (43), and 2) Announced targets (24) for a total of 67 companies. Please let me know if you have any questions as I’ve developed a database to track information on all of these companies.
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This is for educational and entertainment purposes only. It should not be considered financial advice. See a financial advisor for investment advice.