Stimulus SPAC’ing, Starbucks Stimulants & Nikola’s Cone of Shame
Mo’ Money, Mo’ Problems
Never underestimate the market’s ability to find products for people who have money. The market has more money than product right now.
Who’s hot, who’s not? Tell me whose stock sells out in the stores?
You tell me who flopped, who copped the SPAC drop?
I’m guessing the overlap between Great Ones and Notorious B.I.G. fans is pretty thin. But for that one reader who gets it … there you go.
More money, more problems. That seems like a pretty fair summation of Galloway’s quote, especially since he was talking about the rabid influx of SPAC buying … late last year.
We’re nearly a quarter of the way through 2021, and SPACs are still all the rage. And why wouldn’t they be?
Sure, value is starting to make a comeback. But value stock gains are nowhere near the levels offered by SPAC speculation. It’s driven many on Wall Street to claim we’re in another dot-com-like bubble.
Honestly, I have to say that there are striking similarities. A massive amount of money is sloshing around on the market right now. Sure, the circumstances leading up to that ocean of cash are different from the early 2000s. Back then, it resulted from decades of economic growth; now, it’s free Fed cash.
But the end result is still the same: massive amounts of money chasing outsized returns.
And when investors are flush with this much cash, the market will give you a product to buy … one way or another.
Back in the dot-com era, those overinflated and overpromised products were web-connected companies. All you needed was a “.com” behind your company name, and your IPO was a smashing success. You didn’t even need a business plan.
Right now, we’re on the verge of a very similar situation with SPACs. Some 262 SPACs went public in 2020, with another 90 hitting the market in January alone, according to data from Dealogic. Some of these SPACs said that their purpose was to focus on electric vehicles (EVs) or batteries.
Others, such as Switchback II (NYSE: SWBK) said they were focused on “broad energy transition or sustainability arena targeting industries that require innovative solutions to decarbonize in order to meet critical emission reduction objectives.” Someone’s been hitting up the corporate bull#%^ generator website again.
However — and I can’t stress this enough — most SPACs didn’t have an acquisition plan at all. None. Nada. Zip.
And if 2020 taught us anything, it’s that even if a company has a plan, said plan could be all smoke and mirrors … or in hydrogen EV maker Nikola’s (Nasdaq: NKLA) case, faked footage of a truck rolling down a hill. Yes, even I was taken for a ride on that one … and I’m still bitter about it.
Again: more money, more problems. If Wall Street and retail investors weren’t so flush with cash, would even half of these SPACs make it to market? Probably not. The same could be said about the lead-up to the dot-com crash.
So, the question on all of your minds is probably: “Should I invest in SPACs now?”
The answer is: Not without considerable research … and even then, very carefully. Look for SPAC mergers with revenue and growth in a stable industry or a market on the verge of disruption.
Furthermore — and I can’t believe I have to say this — look for SPAC mergers with actual products and not promises. I’m looking at you, QuantumScape (NYSE: QS), and your revolutionary batteries that will likely always be just four to five years away.
Luckily, Great Ones, you’re in the right place at the right time. Great Stuff and everyone at Banyan Hill are here to help you cut through this SPAC’led up market.
I mean, why deal with the headaches of sorting through hundreds of SPACs and other nonsense when you can make massive gains with just one trade a week?
My colleague, Michael Carr, found a way to trade the markets, making the same one trade every week. He does this because any given week, this trade can knock it out of the freaking park.
It’s one trade. On one ticker. Once a week. That’s all you need. Mike recommended 59 of these trades last year. He saw five trades go up 100% or more — each in a week or less. And a total of 18 went up 50% or more — in an average of two days each.
The Good: Big Buzzin’ Bucks
The big buzz on Wall Street this week is which companies will benefit the most from the $1.9 trillion recovery package. Relief checks are hitting accounts this week — some already have — and analysts are already jumping on the speculation train.
Today’s flavor of choice is Starbucks (Nasdaq: SBUX). BTIG Analyst Peter Saleh upgraded SBUX from neutral to buy with a $130 price target — a 17% upside from Monday’s close.
According to Saleh, Starbucks will see a double bump in the coming weeks. Not only will the coffee king benefit from faster-than-expected reopening, but the influx of government checks should goose earnings more than a Red Bull and vodka cocktail.
“The faster-than-anticipated pace of restaurant reopening, coupled with massive federal stimulus, should lead to upward earnings revisions,” Saleh told clients in a research note.
Now, you’ll be hard-pressed to find a bigger caffeine addict … erm, advocate than me, but I’m finding it hard to shake off the fact that SBUX is already trading at all-time highs — and during a pandemic, no less.
So, yeah, Starbucks will see a nice bump from the added stimulus and reopening, but I have to believe much of this news is already priced in.
The Bad: Getting Drafty
I was going to tell y’all about DraftKings (Nasdaq: DKNG) yesterday, but it didn’t quite make the cut. Today’s follow-through has just been weird, so I can’t ignore it any longer.
Yesterday, DKNG fell sharply after the company announced a private $1 billion offering of convertible senior notes. In layman’s terms, DraftKings was taking on new debt … $1 billion in new debt, to be precise.
This morning, the company said that demand for the offering was higher than expected and that it was now offering $1.1 billion in notes. That means even more debt for DraftKings, so you would think the shares would fall even further, right? No sir! This is 2021.
Instead of falling, DKNG rallied more than 2% on news of the upsized offering. Bizarre. The only solid explanation that comes to mind is that investors saw the increased demand for DKNG debt as a vote of faith in the company.
It goes something like this: Are you gonna lend money to your boozy Uncle Sam, who’s probably going to waste it down at the bowling alley on scratch-offs? Or are you gonna lend money to your small-business operating Aunt Sally, who needs to hire more staff because she can’t keep up with demand?
For clarification, DraftKings is your Aunt Sally here. It has a growing business with a very profitable outlook. And this upsized debt offering is investors saying they believe in that business model.
Or … it could just be that Wall Street is ignoring the added debt because DraftKings is gonna make bank during March Madness.
On a side note: Have you filled out your NCAA Tournament bracket yet? Wanna help me win mine? Send your ideas to GreatStuffToday@BanyanHill.com.
Yeah, I’m shameless. So what?
The Ugly: Speaking Of Shame…
How do you make an ugly situation even uglier? Ask Nikola, the EV sector’s resident expert in losing face.
NKLA’s stung by the hydrogen market hornet again today after it announced that it plans to sell $100 million in new shares. Everyone needs some cash relief right now, whether you’re a nationally successful gambling company like DraftKings or … you’re Nikola.
Unlike DraftKings, Nikola is more like your boozy Uncle Sam about to blow its new cash infusion … if investors’ reactions are anything to go by. NKLA plunged 7% today as investors bemoaned the share dilution to come.
What gives? One company takes on over $1 billion in debt and soars; another sells $100 million in stock and plummets. How’s that fair?
It’s fair because investors believe in DraftKings … and not in Nikola. One company is growing, raking in loads of revenue, hoarding daily users and spending toward future growth. The other company is Nikola.
You wouldn’t buy debt from a company you think is garbage, right? That’s why Nikola is offering stock and not debt — no one would likely buy Nikola’s debt.
Well … not no one. I have more than a few interested telemarketers who are just so gung-ho about reconsolidating debt that Nikola might reach out to.
The NBA is already commercializing NFTs by allowing fans to purchase digital video highlights that are authenticated on the blockchain. In just the first week, basketball fans have spent over $65 million on videos of slam dunks and game-winning 3-pointers.
NFTs will pave the way for a new digital economy. They will enable creators to harness more of the value they create.
Now, what’d we just say about the market “finding products for people who have money?”
Yup, here comes Mr. Great Stuff with his nonfungible nonsense — I hear you already. But these nonfungible tokens (NFTs) we talked up yesterday are anything but the latest flavor of the week begging for your digital dollar — especially not to Ian King.
Ian’s no stranger to such blockchain-based realms, and I know many of you follow his romp through the crypto market in Next Wave Crypto Fortunes. But what he points out about NFTs in today’s quote expands the digital trading space far beyond just cryptocurrencies.
With NFTs, you’re able to digitally trade things that you never could before, like sports clips and Twitter posts or the latest Kings of Leon album in a brash attempt to stay innovative … and relevant.
Kings of who?
But, give people something to buy … and they’ll buy it; the digital market’s more than just cryptos now.
But what’s a tech-thirsty investor like you to do with all this ephemeral trading? It depends, as always, on how speculative you wish to be.
If you’re the kinda person to go nuts over the fact you can actually “own” an Elon Musk tweet (an NFT rejoicing the mere existence of NFTs, no less), then … go ahead. Drop a mil and buy a tweet. Sure, you could just print out a tweet on cardstock to thumbtack to the wall … but do you really own that tweet?
If you’re the kinda person to skim through all that NFT stuff to just try and find something investable, I don’t blame you either, and I’ll cut to the chase: blockchain. Just invest in blockchain tech and call it a night. It’s the stuff that makes bitcoin, crypto and NFTs even possible … end of story.
However, if you’re like me (lucky you, huh?), I want to hear your rampant speculation — your teeming tech thoughts and jaded concerns about digital trading.
What do you think about NFTs … about the rise of digital assets? Maybe you’ve already bought up a million-dollar slam dunk video for yourself?
On the plus side, that limited-edition loot you get on World of Warcraft would actually be limited edition, NFT certification and all. What was once only virtual now has real-world value … which is kinda cool.
But a not-so-small part of me still wonders about the messiness that undoubtedly comes with it. We’ve not smoothed out the kinks and fuzzy gray areas at all with copyrights, digital rights management in video games … and how will NFTs be any different?
Let me know what you think: GreatStuffToday@BanyanHill.com.
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Until next time, stay Great!
Editor, Great Stuff