By John Pangere, senior analyst, Strategic Trader
By now, many of you know about an alternative way for companies to go public: the Special Purpose Acquisition Company, or SPAC for short.
For those of you unfamiliar, a SPAC is a company with one purpose: to find a private business to acquire to take public. It’s sort of a backdoor way for companies to go public without the hassle and red tape of a traditional IPO.
Up until last year, investors typically viewed SPACs as a sort of B-movie asset. Going public through a SPAC was a black mark. The reason is because for a long time, SPAC sponsors – the groups that raise the money and put together SPAC deals – used them as a way to enrich themselves and their friends. They were shady deals by almost any standard.
But that’s changing. Higher profile companies like sports betting company DraftKings (DKNG) and electric vehicle battery company QuantumScape (QS) went the SPAC route. They’re sitting on gains of 313% and 166%, respectively, since their SPAC debuts.
Suddenly, investors started paying more attention. SPACs aren’t the little stepbrother of the IPO anymore. And that’s good news for capital markets.
And as I’ll show below, it’s also good news for investors…
IPOs Are Old News
For years, your traditional IPO ruled the roost.
However, traditional IPOs are on the decline.
There are only about half as many public companies today. That decline happened during a period when the U.S. economy more than doubled.
That’s a problem. Public companies are the lifeblood of the wealth-building process.
Most investors need a way to build wealth for retirement. A paycheck probably won’t cut it. Many rely on capital gains from their investments to help fill that role.
That’s why public markets are so important.
But fewer public companies means fewer choices for investors. The difficulty and expense of going public through a traditional IPO is the culprit. It can cost tens of millions of dollars – or more – and take over a year to go public. That scares companies away from the IPO process.
That’s where SPACs come into play. They’re cheaper and more efficient than traditional IPOs. And companies are taking notice.
In 2020 alone, 64 companies closed a deal with a SPAC. That’s more than double the number in 2019, and a full 16 times the number in 2016.
The number of SPAC listings – SPACs that have yet to close a deal – also surged to an all-time high last year.
And these numbers are growing exponentially. So far this year, we’ve seen 228 SPAC deals come to market. That means we’re on pace to obliterate the record – 248 SPAC IPOs – set last year.
With SPACs, it’s fashionable to go public again. That’s great news for the public markets… and especially great news for individual investors looking to get a leg up on their wealth.
However, SPACs are only part of the story giving investors more choice. There’s one hands-down best way to play the SPAC boom…
The 4,942% Sweetener
I’m talking about stock warrants.
My colleague Dave Forest and I have been recommending warrants for just over two years with fantastic results.
For example, one of our biggest winners to date was from the Purple Innovation warrants. In less than two years, readers had the chance to book a 4,942% gain while the stock was “only” up 431% over the same period.
That’s enough to turn every $1,000 invested into over $50,000… versus $5,140 owning the stock.
If you invested in the stock over the warrant, that would mean leaving $45,000 on the table.
Can you afford that? I know most people can’t.
But where do these warrants come from? In most cases today, they’re part of almost every SPAC deal to compensate investors for the risk. In fact, that’s why our readers had a chance to buy the Purple warrants. Purple merged with a SPAC. We recommended the warrants not long after.
We don’t want to get too far into the weeds defining warrants, beyond their explosive money-making potential… but in simple terms, a stock warrant is a security that gives the holder the right (but not the obligation) to buy a share of stock at a fixed price. They usually expire after anywhere from three to seven years.
The SPAC investors basically get a free long-term call option for taking the risk of investing in a business essentially blind.
It’s a great sweetener, especially if the deal works out.
And with the rise in the number of SPACs, that means more warrants available for us… and more opportunities for triple- or even quadruple-digits gains.
How Warrants Work for Us
How does that work in our favor? These warrants end up trading in the public markets. Early investors tend to sell them to take some money off the table and reduce their risk. And you can buy and sell them just as easily as a regular stock.
When the warrants hit the market, that’s an investor’s chance to invest and speculate.
And when the right warrants hit the market, we pounce.
The advantage to speculating with warrants is, they give us leverage to a rising stock price. So if a company’s stock is up 100%, the warrants might be up 200% or more over the same period.
Sure, you could buy shares. For our money though, the warrants are where small investors have a real chance to make life-changing returns, and help close the gap on their wealth goals. That’s because the warrants often trade for far less money than shares.
In some cases, they can even trade for pennies. And as I said above, investing in them is just as easy as buying any stock through your brokerage account.
Point. Click. Buy. It’s that simple. (In fact, we’ve created the first-ever Warrants Master Course to get you started.)
In the past year alone, readers of our premium Strategic Trader service had the chance to cash in on triple-digit gains nine times on warrants from SPAC deals.
That includes 266% from Esports Entertainment Group warrants, 393% from Vivint Smart Home warrants, and 614% from Nesco Holdings warrants.
All of those gains came in less than a year.
If you had put $1,000 in each of those warrants when we recommended them, you would have over $15,000 now.
And it doesn’t take much to speculate with warrants. Whether you put in $100 or $1,000, you would be up a lot of money. That’s how average investors can get ahead.
So if you’re looking for a way to boost your wealth… with less capital at risk… and without the complex nature of cryptos or options… then you should be looking at warrants.
To recap, warrants:
Are a great complement to your overall wealth-building strategy.
Are as easy to invest in as any stock.
Have made many of our readers life-changing money over the past few years.
Are a low-risk, high-reward bet. All you need is a tiny amount of money to be in the game.
Are by far the best way to capitalize on the SPAC boom.
Very few investors today can afford to ignore warrants – they just don’t know it yet.
But we’ll crack this strategy wide open for you right here.
Senior Analyst, Strategic Trader