7 DeSPAC Stocks to Buy Following Encouraging CPI Report
With the latest Consumer Price Index (or CPI) figures suggesting is easy, now may be a great time to consider DeSPAC stocks to buy.
With year-over-year inflation (as measured by the CPI) now running at around 4%, the Federal Reserve’s hiking of interest rates to curb inflation seems to be working. While the Fed merely skipped raising rates in June, and may raise rates some more in the near-term, if the CPI number continues to drop, a “Fed pause,” or better yet, a “Fed pivot” (or lowering of interest rates) may arrive sooner-than-expected.
Why is this good news for DeSPAC stocks, or shares in companies that went public through a merger with a special purpose acquisition company (or SPAC)? Lower inflation/lower interest rates bodes well for growth stocks overall, and most DeSPAC stocks are growth stocks. An easing of these macro challenges will help improve the operating performance of these types of companies. Also, lower interest rates in particular could help their respective valuations to re-expand, after contracting due to the 2022/2023 interest rate increases.
With all of this in mind, now is clearly an ideal time to buy DeSPAC stocks, such as these seven:
Matterport (MTTR)
Matterport (NASDAQ:MTTR) went public during the height of the SPAC bubble. However, it was in late 2021 that shares in this digitizer of the physical world really took off, thanks to the “metaverse bubble” that emerged during this time. After tumbling from the low-$30s to low as $2.20 per share during the 2022/2023 bear market, I wouldn’t expect a quick comeback for MTTR stock. However, this stock (which started to bounce back last month) could continue to make a partial recovery.
As seen in Matterport’s latest quarterly results, even in today’s challenging economic environment, the company continues to grow, and is reporting narrower-than-expected losses. In an improving economy, Matterport could experience a re-acceleration of revenue growth, and possibly, a more rapid move towards profitability. With this strong potential, MTTR is one of the top deSPAC stocks to buy on CPI news.
Pagaya Technologies (PGY)
Pagaya Technologies (NASDAQ:PGY) “DeSPACed” during the 2022 stock market downturn. Yet despite a tough market, shares in this fintech, which specializes in using artificial intelligence (or AI) to assess loan risk, experienced a turbo-charging rally shortly after its public market debut.
That said, sentiment has shifted dramatically for PGY stock. Once trading for as much as $34.50 per share, you can buy it today for just $1.21 per share. Receiving zero boost from “AI mania,” Pagaya has instead fallen into the stock market graveyard, as the market believes its prospects are bleak.
However, as a Seeking Alpha commentator has argued, PGY’s upside potential far outweighs the risks. In his view, Pagaya may not only survive the downturn, but thrive, as it continues to scale up rapidly. In my view, improving economic conditions increase these chances further. This makes PGY one of the top deSPAC stocks to buy.
Paysafe (PSFE)
Paysafe (NYSE:PSFE), a provider of payment services for e-commerce and online gambling, was one of the more high-profile “SPAC wipeouts.” On a split-adjusted basis, shares have tumbled from as much as $234.79 per share in Jan. 2021, to just $11.50 per share today.
But despite this big drop, PSFE may be one of the high potential DeSPAC stocks. At least, that’s the view of InvestorPlace’s Ian Bezek. Bezek believes Paysafe has been oversold, and has argued that the company’s fiscal performance has already started to improve. He’s not the only one optimistic about Paysafe. Sell-side forecasts call for a big jump in profitability during 2024, with one forecast calling for earnings of $2.79 per share that year. If we return to a period of low inflation and lower interest rates within the next eighteen months, hitting this estimate may be within reach for Paysafe.
Polestar Automotive (PSNY)
When it comes to electric vehicle (or EV) plays, Polestar Automotive (NASDAQ:PSNY) is one of the best DeSPAC stocks to buy. Plenty of EV startups went public via the SPAC route. Most notably, Lucid Group (NASDAQ:LCID).
However, while LCID remains overpriced given its dimming prospects of mass market success, PSNY stock appears oversold, given how the company has achieved far greater success than the market gives it credit, as I argued back in May. It’s not a lock that Polestar continues to scale up, achieve profitability, with PSNY charging back up to higher prices.
Yet if inflationary/interest rate headwinds dampening EV demand clear up, Polestar may now have a stronger chance of at least partially living up to past expectations. Doing this may be enough to send the stock back to its original SPAC price ($10 per share), more than 150% above current price levels.
NuScale Power (SMR)
Among the DeSPAC stocks listed above and below, I’ll admit that factors like interest rates and inflation matter less for NuScale Power (NYSE:SMR). Future prospects for this developer of small modular reactors depends heavily on renewed mass adoption of nuclear power.
Nevertheless, a comeback in popularity for nuclear power appears to be in play. Although safety concerns and regulatory hurdles remain, governments around the world are increasingly looking at nuclear power as a more realistic way to wean off of fossil fuels while at the same time meet ever-increasing demand for electricity.
With this secular growth trend in its corner, SMR stock is well-positioned to perform well in the years ahead. Although it may take more time for SMR to take off compared to some other deSPACing names with high rebound potential, patient investors looking to wager on the “future of energy” should take a look at this stock.
SoFi Technologies (SOFI)
Lately, SoFi Technologies (NASDAQ:SOFI) has been one of the top performing DeSPAC stocks. In the past month, shares in this fintech/neobank have zoomed more than 70% higher. As I discussed back on June 9, this has been mostly due to the outcome of the recent Debt Ceiling battle in Washington.
The bipartisan resolution included provisions that made it a definite that student loan repayments will begin after Aug. 29. As this is a boon SoFi’s student loan refinancing business, SOFI stock not surprisingly bolted higher on the news. Yet while the SOFI rally has lost momentum, the recent promising economic data could give it additional runway.
How? A stronger economic backdrop could give SoFi a better chance of continuing to beat expectations with its quarterly results. This could send the stock (at around $8.50 per share today) back up to double-digit price levels.
UWM Holdings (UWMC)
It’s easy to see why UWM Holdings (NYSE:UWMC) is one of the best deSPAC stocks to buy following the latest CPI print. Easing inflation bodes well for the future direction of interest rates. As you likely know, spiking interest rates have affected mortgage demand.
This has weighed on the operating performance of this wholesale mortgage lender, and on the performance of UWMC stock. Mortgage demand is picking back up, but if lower inflation gives way to lower interest rates, it could lead to a big comeback for UWM.
Analysts are already forecasting a big rebound in profitability. A sooner-than-expected housing recovery may enable the lender to hit, or perhaps even beat, the top end of 2024 and 2025 earnings estimates. Trading for around $5.65 per share today, getting back to its original $10 per share SPAC price may be well within reach for UWMC.
On the date of publication, Thomas Niel did not hold (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.
