Whitney Tilson’s email to investors discussing the Lordstown Motors Corp (NASDAQ:RIDE) debacle; Enrique Abeyta on opportunities in the SPAC sector; Virgin Galactic cratering this week.
Behind The Lordstown Debacle
1) This story in yesterday's New York Times underscores the perils of investing in the special purpose acquisition company ("SPAC") sector: Behind the Lordstown Debacle, the Hand of a Wall Street Dealmaker. Excerpt:
It took decades for Warren Buffett to build Berkshire Hathaway into the conglomerate it is today. Along the way, the Oracle of Omaha and his business partners have acquired a range of different companies and extracted cash from failing businesses to reinvest back into growth stocks. Q2 2021 hedge fund letters, conferences and more The Read More
Lordstown went public in October via a merger with Mr. Hamamoto's special purpose acquisition company, DiamondPeak Holdings. A Wall Street innovation, SPACs are all the rage, having raised more than $190 billion from investors since the start of 2020, according to SPACInsider. At the same time, small investors have become a potent force in the markets, driving up the stock prices of companies like GameStop (GME) and lapping up shares of SPACs, which are highly speculative and can pose financial risks.
In Lordstown, those forces eventually collided, highlighting the uneven playing field between Wall Street and Main Street. Small investors began piling into Lordstown shares after the merger closed, attracted to the hype around electric vehicles. That's exactly when BlackRock (BLK) and other early Wall Street investors – as well as top company executives, who all got their shares cheaply before the merger – began to sell some of their holdings.
Opportunities In The SPAC Sector
2) I think the carnage in the SPAC sector over the past few months has created massive investment opportunities comparable to the aftermath of the bursting of the Internet and housing bubbles in late 2002 and early 2009, respectively.
But, as was also the case back then, you can't just wade in, buying things willy-nilly. You either need to be an expert or be guided by one – like my colleague Enrique Abeyta, who's been investing successfully in the sector for more than two decades.
Later today after the market close, in the July issue of Empire SPAC Investor, Enrique is giving a "State of the SPAC Union" and a position-by-position update on his model portfolio.
Trust me, if you're investing (or considering investing) in this sector, you won't want to miss Enrique's thoughts on it. If you aren't already a subscriber, click here to learn more about Empire SPAC Investor and find out how you can get the latest issue risk-free.
Virgin Galactic Cratering
3) In Monday's e-mail, I wrote the following about space-tourism company Virgin Galactic Holdings Inc (NYSE:SPCE), whose shares were up 7% to more than $52 pre-market in the aftermath of founder Sir Richard Branson's successful trip to space in one of the companies rockets on Sunday:
I'm happy for Branson and Virgin Galactic – but I'm not even tempted to recommend the stock again. Even though SPCE shares were up earlier this morning in pre-market trading, there's a high risk that this could be a huge "buy the rumor, sell the news" situation...
Sure enough, the stock has cratered this week, closing yesterday at $37.76. I think it's too early to bottom-fish – it will have to go below $20 before I get interested...
Goldman Sachs Q2 Earnings
4) Investment banking giant Goldman Sachs (GS) reported strong second-quarter earnings after the close on Monday that handily beat analysts' expectations thanks to the U.S. economy roaring back to life.
I've been pounding the table on the stock since my December 18, 2018 e-mail, and it was our recommendation in the second issue of Empire Stock Investor on December 30, 2019, when GS shares were at $229.80. Since then, the stock is up 67% (including dividends), nearly double the 36% return of the S&P 500 Index. We're still holding shares in our model portfolio today.