SPACs vs. IPOs: Which Should Investors Prefer?

SPACs vs. IPOs: Which Should Investors Prefer?

ith companies waiting later and later to go public in many cases, like Airbnb (NASDAQ: ABNB) and Uber Technologies (NYSE: UBER) did, it can be difficult for everyday investors to get in on the ground floor of growth opportunities. In this Fool Live video clip, recorded on Oct. 18 , contributors Matt Frankel, John Rosevear, and Danny Vena weigh in on the SPACs vs. IPOs debate. 10 stocks we like better than Airbnb, Inc.
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Airbnb, Inc. wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

*Stock Advisor returns as of October 20, 2021

Danny Vena: ProShopGuy says, “With IPOs becoming public at larger and larger market caps well over $1 billion, do you prefer IPOs versus micro-caps under $1 billion? I can start that off and honestly, I don’t necessarily decide if I’m going to invest in accompany based on whether or not it’s an IPO, or a market cap, or a mega cap, or a mid-cap. I look at what the opportunity is and whether or not the company can capitalize on that opportunity. When it comes to IPOs, I tend to lag a little bit, I will wait until there’s some data out there generally till they have a couple of quarters as a public company before I think about investing unless there’s a compelling reason otherwise. But what do you guys think?

Matt Frankel: I would agree with that and I would say that over the past decade, the trend has definitely been for companies going public later and later in the game, I think of Uber, how long they waited to go public. I feel like the SPAC because this is the SPAC and IPO show, I feel like the SPAC boom, if it has one really positive effect, it’s bringing back the more early-stage IPO. You’re seeing a lot more companies being able to go public at these earlier stages, which is against the trend we’ve been seeing in the past several years. A lot of them have been in the automotive industry, like John said. A lot like the two that I’m about to talk about are just earlier stages then could these types of companies have been going public. If there’s one thing about the 500 SPACs that have gone public in the past year or so that is a positive change in the market for IPO investors it’s that.

Vena: John, any two cents you want to add?

John Rosevear: Well, I’m going to fall back on Foolish fundamentals, which is that I look for great businesses at not insane prices and it’s prices $400 million market cap or $30 billion market cap. I’m not so concerned, I’m looking for opportunities everywhere. I don’t tend to gravitate to a specific stock. I have big old industrial cyclical giants in my portfolio, and I have small nimble emerging technology companies in my portfolio.

Again, I’m just looking for something where I can say, OK, I see why this company has an advantage and it’s doing everything right and so forth. I would not actually get into that much with SPACs, you always have to wonder a little bit, at least in autos, we’ve had a couple of unfortunate experiences where because when a SPAC does a merger they can publish projected future financials and so forth where we’ve seen that some of those projections were not actually based on what we thought they were based on.

Vena: On reality.

Frankel: On reality.

Rosevear: Indeed so there is an extra level of caution. The other company I want to talk about as Lucid (NASDAQ: LCID) , which has been patient in coming to market. It did come to market via SPAC deal earlier this year. But it’s a company that we had been tracking myself and my Foolish colleagues who obsess over the auto business for like four or five years now. They were a company that was not a moonshot, “we’re going to build electric truck someday” to just cite an example out of thin air. We have a factory, they have actually begun production. Their SPAC it will close a few […]

source SPACs vs. IPOs: Which Should Investors Prefer?

Leave a Reply