Should Value Investors Buy SPACs?
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.
Disclaimer: Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the more