2020 has been a pretty successful year for special purpose acquisition companies (SPAC). Around 180 SPAC stock have entered the stock market this year, totaling gross proceeds of approximately $65 billion.
A year full of trauma has made it difficult for investors to think about where to invest their savings. However, there is a new stream of SPAC stocks that have recently been in action. This year has turned out to be a good year for SPAC stocks.
Where SPAC stocks might sound something off the track, many veteran investors would have come across this term for the first time. The increase in retail participation in the stock market has driven firms to become special purpose acquisition companies.
We will talk about a couple of SPAC stocks with the ‘buy’ option, but first, we will have a brief overview of what SPAC is.
What is SPAC?
A special purpose acquisition company, popularly known as ‘SPAC’, is an enterprise with no commercial operations. A SPAC merges with a private company through an initial public offering (IPO) and raises capital for the merged enterprise. This paves the way for a private company to go public without any conventical method—a more extensive IPO process.
The EV SPAC stocks are hot stocks with growth potential. Let’s have a look at the following two SPAC stocks to buy before 2021.
Northern Genesis Acquisition Corp (NGA)
Northern Genesis (NGA) has agreed to merge with Canada-based electric vehicle maker, The Loin Company. The Pro-Forma market value is estimated to be around $2.6 billion.
On Nov. 30, aMO-based SPAC signed a merger agreement with The Lion Company. The agreement involves funding of additional capital of $200 million through private investment in public equity (PIPE).
The combined company will be listed on the NYSE under the ticker ‘LEV’ with the company named The Loin Company. After the completion of the listing, LEV will have approximately $500 million in its coffers. This will support the company to work on the five-year development of its projects including electric trucks and buses.
The company anticipates establishing its manufacturing plant in either West or Midwest of the U.S. This will add to their existing plant that is based in Montreal which has a production capacity of over 2,500 electric trucks per year.
Moreover, not only the development prospects but the economics of the deal are also appealing. For instance, NGA stock has surged over 32% raising the pro forma value of the deal to $2.1 billion. While, the projected EV-to-Revenue ratio is 0.67 times for the next four years; well below the peer average ratio of 0.73 times.
So, NGA stock has probably a 40% upside potential to $19.48 per share from today’s price of $14.14, as we write this. The SPAC public shareholders will hold more than 20% of LEV, which makes it a good long-term investment option. Buying at a low rate will increase the profitability rate.
Nikola (NKLA) has lately been off-color due to General Motors pulling back from the potential deal with the EV maker for production of its Badger truck. GM was about to invest $2 billion in NKLA; however, the deal didn’t make out as both companies now retain on fuel cell partnership.
With tables turning against Nikola, things are getting a bit clear as the company has more upside potential before the New Year begins. Nikola on its own and with several other partnerships have been doing quite well. So, the long-term outlook of Nikola stock is positive.
The reason behind going bullish on Nikola is based on the outlook of its core market being positive. Moreover, the company also has sound EVs with no major problems at all.
With the global market targeting more green and clean initiatives, Nikola’s hydrogen fuel cell technology will be in high demand in the future. The core market of NKLA is trucks and it is poised to grow rapidly.
The Wall Street analysts have been more upbeat on hydrogen technology in the recent past, which makes NKLA stock more bullish. Moreover, the company has partnerships with various top-ranked enterprises in the trucking sector including Bosch and Wabco, two well-known part makers. This helps the company to diversify its development.
So, Nikola Stock is on the radar to buy. The share price is quite good around $16.54. I have a feeling that in the next year the stock will push to break its 52-week high price of $93.99.