3 Oversold SPAC Stocks to Buy on the Cheap
These are three beaten up SPAC stocks that offer strong long-term growth potential—and can be had at prices below the key $10 level.
What goes up must come down. Special purpose acquisition companies, or SPACs, have been the poster child for how quickly the market can giveth and taketh away.
Once the darlings of the investing world, most SPAC stocks have taken it on the chin this year following a raucous 2020. Companies that took the ‘backdoor’ SPAC route to the public markets have fallen woefully out of favor in recent weeks.
SPACs have faced rising scrutiny this year due to their poor fundamentals which often includes a lack of profitability. Some will have a difficult time generating the growth needed to win back investors, while others have merely been dragged down with the herd and will be just fine.
These are three beaten-up SPAC stocks that offer strong long-term growth potential—and can be had at prices below the key $10 level.
Is UWM Stock a Good Income Investment?
United Wholesale Mortgage Corporation, or UWM, (NYSE: UWMC) isn’t a name that gets the blood boiling but at current levels it should. The Michigan-based company made its public market debut in January, and it’s been downhill since. UMW is down 45% in 2021 which is good news for investors.
As the leading wholesale mortgage lender in the country, UWM’s sweet spot is broker services and not direct-to-consumer loans. It essentially serves as the middleman for a vast network of mortgage brokers which spans all 50 states. The value proposition for brokers is the ability to close loans faster, more efficiently, and at a lower cost.
For UWM investors the value is access to the company’s recurring revenue streams that stem from having mortgage servicing rights on any lending it lends a hand with. This puts it in the rare company of profitable SPACs and makes its stock an attractive growth and income play on the hot U.S. housing market.
UWM stock has a 5.4% forward dividend yield and an RSI reading of 42. The cheaper loan originator is becoming a cheaper way for investors to buy a clear market leader riding the housing boom.
Is Digital Media Solutions Stock Oversold?
Digital Media Solutions (NYSE: DMS) provides digital performance advertising solutions for advertisers in various insurance industries as well as the consumer space. Its first-party data and in-house technology helps its customers expand their audiences and make effective use of their advertising dollars.
Lately, DMS hasn’t made good use of its shareholders’ dollars with the stock down 37% year-to-date. But the RSI reading of 36 and exposure to the fast-growing digital media space should get investors’ attention.
Over the past month, three sell-side firms have reiterated their buy ratings on DMS, a collective vote a confidence for the sliding stock. Their price targets range from $12 to $16 which points to a possible double.
DMS shares appeared to be turning around on August 16th after management revealed a plan to review the company’s strategic alternatives aimed at maximizing shareholder value. This got investors buzzing about potential M&A activity or the possibility of returning to the private market.
Regardless of how the strategic review plays out, DMS is an attractive play on digital ad technology and more specifically the online insurance space. The auto, health, home, and life insurance businesses are in the early innings of a major digital transformation. DMS is expected to benefit from this growth and at a reasonable 17x EV/EBITDA ratio, investors can hitch an inexpensive ride.
Is Ouster a Good SPAC Turnaround Play?
Since soaring above $17 in its early SPAC days, Ouster (NYSE: OUST) has been ousted by the market along with the rest of its SPAC peers. Down 43% this year and with a sinking RSI of 47, oversold conditions are setting in for the once sizzling technology innovator.
Ouster is an emerging player in lidar technology, a field that has widespread application in autonomous vehicles, security, and more. It is differentiated in the space on account of its digital approach to lidar which is likely to unseat traditional analog technology.
The company’s digital lidar hardware and software have the potential to power more than self-driving cars. Tractor-trailers, construction equipment, warehouse forklifts, and drones are some of the other things expected to employ lidar in the years ahead to improve autonomy, safety, and efficiency.
Between the automotive, industrial, robotics, and smart infrastructure market, Ouster will have an $8.6 billion diversified market at its disposal by 2025 according to estimates made by McKinsey & Company. And while it is commonly associated with autonomous driving, Ouster’s biggest opportunity may be in the smart city market where digital lidar cameras are poised to replace legacy CCTV systems for added safety at a lower cost.
Ouster is one of the many unprofitable technology SPACs, but its massive and diverse growth markets make it worth the risk at the current price. And with multiple Wall Street firms calling for the stock to double, analysts are detecting a well oversold SPAC.