New Position, a Sale, and Upgrades

"There's $4.5 Trillion uninvested in the hands of professional investors,

The Fed says rates will stay at or near ZERO indefinitely,

Bonds and Savings pay ZERO,

Yes, I'm buying stocks”

- Clay Baker

​​The Portfolio

As I'm writing,

The portfolio is UP +26.25% YTD

Our benchmark, the S&P 500 is up about 3.57% YTD

Buying Pershing Square Tontine Holdings (PSTH) 2020 has been a year of firsts, and one of them is called a Special Purpose Acquisition Company, or SPAC for short. By my count, 82 SPACs went public in 2020 and raised around $30 billion dollars. I'm sure we'll see more before the year ends. SPACs raise money in an IPO and then place it in a trust while the sponsor searches for a business or businesses to acquire, usually within a two-year period. The companies then complete a merger and the target becomes a listed stock. Recent examples include sports-betting operator DraftKings (DKNG), electric truck maker Nikola (NKLA) and space travel company Virgin Galactic Holdings (SPCE).



Bill Ackman - Pershing Square

Activist investor Bill Ackman of Pershing Square Capital Management is all too familiar with SPACs having taken a stake in a SPAC in 2011 that eventually took Burger King and Tim Horton's public, giving Ackman a 1% share of Burger King. This year he launched Pershing Square Tontine Holdings (PSTH), raising $4 billion, in what was the largest ever SPAC to date.


We don't know yet what PSTH will acquire, but rumors of AirBNB, In-N-Out Burger, and others have floated around. Of the 82 SPAC launched in 2020, I only like three, and all for the same reason. When you don't know what the company will be acquiring you have to bet on management. In this case, I'm betting on Bill Ackman.


Case-in-point, Tillman Fertitta created a SPAC called Lancadia Holdings (LCA). Lancadia Holdings acquired Golden Nugget Casino's online gaming and sportsbook from Golden Nugget Casino's; which happens to be part of Fertitta Entertainment. The online gaming business will be a huge opportunity in 2021 and the new issues for gaming are showing up in other SPACs that are trying to get to market this year so they are prepared for a national gaming law. Given the amount of stimulus the Federal Government is injecting it stands to reason that politicians will need new sources of revenue and the two most likely sources are online gaming and cannabis. The first step is to pass a national law that makes online gaming and medical cannabis legal in all states; and then the states will follow with their own laws. The more aggressive states will do everything they can to attract gaming and cannabis businesses. If you don't know anything about gaming laws, online gaming, or what the market might be in the future you can derisk your investment a bit by betting on good management. In this space, Tillman Fertitta is a solid bet.


PSTH is top of my list, and unique for another reason; there's no management fee being paid to Pershing Capital. Ackman is participating in the stock price along with everyone else, which means his incentives are aligned with investors. But one critical issue remains, how do we value a stock that doesn't own anything. Actually , I found this easier than usual.

  1. Bill Ackman will only invest where he can get private equity size returns, we have to assume that PSTH will eventually deliver returns that significantly outperform the market. I've set a price target of $100 on this stock which is currently selling for around $22. I'm being conservative.

  2. Prior to an acquisition, any investment is an investment in cash because there's nothing else there except cash. This is why the stock price doesn't move around much.


BUY 45 shares of PSTH @ $22.69


Sold BioDelivery Sciences (BDSI) I still like this company but had to make a hard choice to either keep the stock through the election and risk a big decline as soon as the candidates start all the rhetoric about high drug prices; or sell it and put the money to work somewhere else. With so many good choices out there I decided to derisk the portfolio a bit. By the way, a number of hedge funds have sold BDSI in recent quarters. It's a great company with excellent prospects but there aren't any big catalysts looming that would make me hold the stock through the election. Investors seem to have forgotten that there is another pandemic out there that needs the kinds of drugs BDSI develops. BDSI offers BELBUCA, a buprenorphine buccal film for the treatment of chronic pain; BUNAVAIL, a buprenorphine and naloxone buccal film to treat opioid dependence; and ONSOLIS, a fentanyl buccal soluble film for the management of breakthrough pain in opioid-tolerant adult patients with cancer. The company also offers SYMPROIC, a peripherally acting mu-opioid receptor antagonist for the treatment of opioid-induced constipation in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent opioid dosage escalation.


If this stock gets sold off hard on rhetoric, I would be a buyer down around $2.85. I would probably go overweight with the position at prices much lower, like around $1.50.

SOLD 165 shares of BDSI @ $3.77


House Cleaning I also did a bit of housecleaning today. I updated the BUY AROUND prices and my 12-month PRICE TARGETs. Most of the companies got an upgrade on the 12-month price target, Amazon and Nvidia were the only ones with big increases, mainly because I hadn't updated them in several months. In past years I've only updated my price targets when a stock reached the target early and I thought there was room to run into year-end. This year there are some other factors driving my increases and decreases, primarily the Federal Reserve, stimulus, and the massive amount of cash sitting on the sidelines waiting to be invested. Even with all the traditional IPO's and SPACs that came out this year, there are far too few publicly traded companies. That means more dollars chasing after fewer companies which ultimately causes stock prices to increase above normal valuations. But when interest rates are near zero, what's the alternative? Investors will pay up for growth, and they will pay up for dividend yields, and when companies buy back their own stock because they can't find a better use for that capital, stock prices will go even higher. The stock market is overvalued, but when viewed against alternative investments (bonds, savings, CDs, real estate, etc) the valuations aren't as crazy as they appear.


"Markets don't go to zero, Portfolio's do.

Buy quality, be patient...and look twice for motorcycles."

- Clay Baker

Stay Invested,

Clay Baker

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Keep Me Honest 2020

  1. Today is a good time to carefully leg into stocks again (3-20-2020).

  2. Worst Case: S&P 500 decline further to around 2,100 - 2,150 (3-28-2020).

  3. Middle Case: S&P 500 level out around 2,650 - 2,700 (3-28-2020).

  4. Best Case: YE S&P 500 eventually rise to around 3,000 - 3,200 (3-28-2020).

  5. Market bottomed March 23, 2020 at S&P 500 2,237.40 (4-17-2020).

Clay's Rules

Rule #1: Don't lose money

Rule #2: See Rule #1

Rule #3: Portfolios go to zero, markets don't, Stay Invested

Rule #4: When good stocks you own drop 10% below your cost basis, add shares

Rule #5: Bull markets aren't sustained without the Transports

Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase

Rule #7: When an investment bank sells below book value, buy it

Rule #8: Tips are for waiters. Do your own homework.

Rule #9: Don't sell a stock because you're bored with it. Do your own homework.

Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:

AMD

I am invested short in these securities mentioned in this post: GSX

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved