Markets

These 2 Soaring SPACs Defied a Down Stock Market Friday

The stock market gave up ground on Friday, as market participants were willing to go into the weekend on a quiet note. The federal government is gearing up for the White House transition next week. The incoming Biden administration has started releasing details of plans it hopes to push forward when it takes power.

The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite were lower by between 0.5% and 1%.

Index

Percentage Change

Point Change

Dow Jones Industrial Average

(0.57%)

(177)

S&P 500

(0.72%)

(27)

Nasdaq Composite

(0.87)

(114)

Data source: Yahoo! Finance.

Yet even in the down market, some of the hottest investments on Wall Street right now did well. Special purpose acquisition companies have taken the investing world by storm, and today, shares of Social Capital Hedosophia Holdings V (NYSE: IPOE) (SCHH V) and Churchill Capital IV (NYSE: CCIV.U) fought against the downtrend and moved up.

Impatient investors don't want to wait

As for SCHH V, investors in the SPAC already know the business they're likely to be investing in. Last week, the company announced that it had signed an agreement with next-generation financial services platform provider Social Finance, or SoFi for short. That sent shares of SCHH V soaring as investors celebrated the fact that the SPAC had found not only a viable merger candidate, but one that also carries some prestige and plenty of future growth potential.

At this point, though, it's now a waiting game for investors. The terms of the agreement are known, and people are working behind the scenes to take care of all the documentation and disclosures necessary to move the deal forward. SCHH V will file a prospectus and proxy statement in preparation for the required shareholder vote to confirm the deal. All of that is likely to take anywhere from several weeks to a couple of months to push forward.

Person in suit wearing boxing gloves.

Image source: Getty Images.

Given the stock's move higher, shareholders are all but certain to approve the deal with SoFi. Even though nothing new is really happening from a shareholder perspective, investors continue to trade the SPAC shares heavily. Since the announcement, shares have jumped as high as $22 and been as low as roughly $18. Today, they added 5% to close above $20 per share.

Just about the only news that came out recently was a short disclosure about the $6.6 billion value of the deal, the $2 billion in cash that SoFi will have at its disposal as a result of the merger, and the treatment of existing SoFi common and preferred shareholders. Nevertheless, keep an eye on the SEC filings for SCHH V to see when new information about SoFi comes into the public eye.

Staying Lucid?

Meanwhile, Churchill Capital IV doesn't even have an official merger partner yet. However, investors are pretty sure which privately held company is Churchill's target, and they're excited about the idea, pushing shares of 6% Friday. That brought the SPAC's gains to more than 80% for the week.

Early this week, reports surfaced that Churchill hoped to make a deal with electric vehicle manufacturer Lucid Motors. EV automakers and related companies are all the rage right now. A number of SPACs that have consummated deals with vehicle manufacturers and makers of innovative technology with applications in the EV universe and have performed extremely well.

Until a deal gets announced, though, nothing is certain. Indeed, if Churchill weren't able to get a deal done with Lucid, then it's entirely possible that the stock price would sink back to the $10 per share it fetched prior to this week.

Be smart with SPACs

Special purpose acquisition companies come with all the hype and uncertainty of IPOs. But at its heart, it's just a way to invest your money in an underlying business. If you like SoFi as a long-term investment, buying shares of SCHH V makes sense right now. If you like Lucid and think Churchill will close the deal, then that could warrant an investment in the SPAC. Beyond that, much of the activity these SPAC stocks are seeing is pure speculation.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of Social Capital Hedosophia Holdings. V. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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