Buy Churchill Capital Stock After the Inevitable Post-Merger Dip
Since I last wrote about Churchill Capital Corp IV (NYSE:CCIV) stock, much water has passed under the bridge.
We are ten days away from the inevitable merger of the SPAC with electric vehicle manufacturer Lucid Motors. Due to the previous delays of the merger, CCIV stock lost steam during the pre-merger period that is generally good for SPAC stocks.
Traditionally, before a SPAC, or special purpose acquisition company, merges with the target company, the shares of the SPAC rally. That makes sense because a number of short-term catalysts occur just before the merger. Specifically, the shareholders vote in favor of the deal, the merger is completed, and the new ticker starts trading.
But CCIV stock has not enjoyed a meaningful pre-merger rally. One reason for that could have been a rumor that Lucid was seeking permission to sell additional shares of CCIV stock in conjunction with the vote on the merger. However, the rumor was inaccurate.
As the merger date approaches, investors have to decide whether they want to hold the stock to benefit from the remaining short-term catalysts or part with their CCIV stock, at least for the time being. Of course, holding the shares for several years is another possibility.
I think it will take that long for Lucid Motors’ stock to peak.
CCIV Stock and the Post-Merger Dip
In 2021, Churchill Capital became the most popular stock for momentum investors looking to replicate the success of Tesla (NASDAQ:TSLA).
Peter Rawlinson, the CEO and CTO of Lucid, was the Chief Engineer for Tesla’s Model S EV and the latter company’s Vice President of Vehicle Engineering.
Rawlinson’s background alone makes Lucid one of the top EV names. And thousands of consumers are interested in Lucid’s EVs. Its total vehicle reservations have topped 9000, and it is on the cusp of starting production of its vehicles. Indeed, Lucid Air and the company’s flagship “Dream Edition” are expected to launch later this year.
In an interview with Reuters, Peter Rawlinson said the EV maker plans to launch a rival to Tesla’s Model 3 in 2024 or 2025. A sub-$70,000 EV, the Luxury Air, will launch in 2022, followed by an SUV in 2023 called the Gravity.
But I would not buy or hold CCIV stock heading into the merger, even though it has many positive catalysts on the horizon. That’s because of the stage of the SPAC cycle that it is in.
Right now, the merger is about to be completed. Multiple studies reveal that once a reverse merger closes, the shares lose a bit of steam because retail traders tend to take their profits and invest them elsewhere.
Playing the Long Game
A buy-and-hold strategy is not for everyone. But the important thing to note is that Lucid is still an early-stage company, and its performance can only be adequately gauged in several more quarters.
Right now momentum traders are holding the shares up. But although the company has not yet sold a car, it has a market capitalization of $6.6 billion.
The shares will undergo price corrections along the way. But Lucid is an electric-vehicle company with a coherent strategy. And its CEO has been there, done that, and seen it all.
Wait for the Merger to Be Completed
Lucid Motors is not a fly-by-night operation. Undoubtedly, however, there are sound reasons why investors decided to bail on it.
Specifically, there is a semiconductor shortage, there are supply chain issues, and the merger process has had its ups and downs. However, everyone can agree that Lucid’s long-term strategy is clear.
In the coming years, Lucid expects to increase its capital expenditures significantly. Moreover, the automaker has to successfully execute its EV launches.
For now, investors should take their profits on CCIV stock and invest them in stable recovery plays. Once the dust settles on the merger, the shares should make up a small position of investors’ portfolios.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.
