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Should Value Investors Buy SPACs?

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  • (1:00) - Are SPAC’s Good Investment Tools?
  • (4:05) - Breaking Down The Holdings Of Starboard Value Acquisition Corp: SVACU
  • (18:20) - Episode Roundup: NLOK, AAP, ACM, GDOT, MMSI
  •     Podcast@Zacks.com

 

Welcome to Episode #207 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Tracey recently got an e-mail from a podcast listener who wondered about the recent SPAC from hedge fund Starboard Value’s managers and whether he should buy it.

Starboard Value Acquisition Corp. went public as a SPAC in early September and raised $360 million.

It’s a blank-check company which means it doesn’t own anything or even have a business yet. It will use the money raised from going public to acquire companies.

Starboard Value, the hedge fund, has $6.1 billion under management and files 13-F forms showing its trades and positions every quarter.

The SPAC will be led by Starboard Value managers Jeffrey Smith and Martin McNulty.

You can tell a lot about a manager’s strategy by what they already own in the portfolio.

What kind of value stocks are in Starboard Value’s portfolio?

5 Top Holdings in Starboard Value

1.       NortonLifeLock Inc. (NLOK - Free Report) is a Zacks Rank #2 (Buy) stock. It’s trading with a forward P/E of just 15.8 as shares are still down 18.5% year-to-date and have pulled back with the rest of the technology stocks in September. Yet earnings are expected to rise 47.7% in Fiscal 2021.

2.       Advance Auto Parts (AAP - Free Report) has staged a huge rally off its March coronavirus lows, surging 98%. However, it’s still down 6.9% year-to-date. It’s trading with a forward P/E of 18 and a PEG of 1.7. Is it a buy on a bigger correction?

3.       Aecom (ACM - Free Report) is an infrastructure firm that has worked on projects such as SoFi Stadium in California and One World Trade Center in New York. Over the last 6 months, the shares have rallied 54% which is 10% better than the S&P 500 during that same time. It has a forward P/E of 18.6 and a PEG of 1.5. Could infrastructure be hot in 2021?

4.       Green Dot Corp. (GDOT - Free Report) operates an online banking platform. Analysts have revised 2020 estimates higher over the last 3 months as they got too pessimistic during the lock down. Earnings are still expected to be down 30.5% in 2020 but rebound 19.3% in 2021. Shares have surged 112% year-to-date. Is it too hot for value investors to handle with a forward P/E of 25.6?

5.       Merit Medical Systems (MMSI - Free Report) makes disposable medical devices. This mid-cap company is not a value stock right now as it trades with a forward P/E of 32.3 even though shares have come down 15% in the last month.

Just because a fund manager owns these types of companies in the fund, doesn’t mean the SPAC will own similar companies.

Should value investors buy into this, or some of the other SPACs that have been listed in 2020?

Tune into this week’s podcast to find out.

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