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BuzzFeed shareholders will vote today to take the company public via a merger with a special-purpose-acquisition company, or SPAC. The deal is expected to close Friday. By Monday, the company could start trading under the stock ticker BZFD. Shares are expected to trade for around $10. Jonah Peretti, BuzzFeed’s CEO, has already sent out invitations for the ringing of the bell on the floor of NASDAQ and for a celebratory dinner at the Indian restaurant Sona, where he will perhaps chow down on $38 green pepper halibut and think about the some $64 million in stock options he holds and the fact that he will retain control of the company he founded. But not everyone is in the mood to uncork Champagne.
Earlier this year, Alex Korda, a deals analyst at the Edge, studied 115 SPAC deals and found that the ones in the communication-services sector were consistently among the worst performers. “Definitely this is one of the two major sectors that we found are best to avoid, or at least view with extreme caution,” says Korda. “In the first month, 22 percent of communication companies outperformed, meaning they made money and they outdid the index, while the other 78 percent flat out lost money,” he says. “By the third month and beyond, they were all losing money at a deepening rate through to the 12-month period.”
The traditional approach tois buying stocks that appear cheap relative to their book value. Most often these cheap stocks are discovered by investors who pour over financial statements and filings to establish stocks that others are underestimating. Independent research firm Boyar Research tears up the value-investing playbook by looking at value stocks through a private-equity lens, and demonstrating that finding value picks can be more than just looking at financial statements.
It’s a strategy that’s paid off. Boyar Research’s picks have consistently outperformed the market. Over a 7-year period, the average annualized return of stocks profiled by Boyar is 20%, almost 5% above that of the S&P 500. The outperformance is even more striking when it comes to microcap stocks. Over a 5-year period, Boyar’s average microcap returns are 28.7%, 17% above the S&P. According to Boyar’s website, approximately one in two ideas outperformed the index over a 1-, 3-, and 5-year period.
At The Edge conference on November 18, Jon Boyar, president of Boyar Research, shared three high-conviction buy ideas that demonstrate three different schools of thought in value investing.
Over the years, Joel Greenblatt has surrounded himself with investing titans as a disciple of Warren Buffett and Ben Graham’s investing philosophies. He famously provided seed money to “Big Short” investor Michael Burry to start Scion Capita and received his own seed money from “junk bond king” Michael Milken. Between 1985 and 1994, the legendary investor averaged astonishing annual returns of 50% managing Gotham Capital — the predecessor of his current firm Gotham Asset Management.
This track record means many investors eagerly await Greenblatt’s take on the market environment. But these opportunities can be limited and infrequent. And he generally only tends to share his views with investors in his capacity as co-CIO of Gotham, to students as a teacher of value investing at Columbia University, or to readers of his books, such as ‘You Can Be A Stock Market Genius.’
The Edge conference on November 18, hosted by top special situations investor Jim Osman, brought together seven industry experts who provided insights to help investors gain an edge in special-situation investing, while also raising money for the Alzheimer’s Association. Greenblatt shared his thoughts on opportunities in the current market.
Following in the footsteps of Facebook’s decision to rename its brand as Meta, Playboy is revving up its entry to a Metaverse of digital and real-world opportunity as its successful SPAC launch will further transform and propel its brand into a global lifestyle.
PLBY’s share price has shot up 263 percent since it launched in January of 2021, largely down to stellar acquisitions, the likeable CEO Ben Kohn, and its slimmed-down team of forward-looking Gen Z and Generation Alpha marketing geniuses.
The Edge (the leading research source in under-performing companies for activist involvement, Special Situations and Spinoffs) interviewed exclusively over Zoom with Mr. Kohn to get the lowdown on his futuristic vision for the brand.
Elon Musk and his brother Kimbal hit headlines last week when they respectively sold $8 billion and $109 million of Tesla shares. That sort of behaviour can serve as a price signal for investors, according to George Muzea, who tracks when directors and employees buy and sell shares in their companies.
“Insiders are basically value investors,” he said, speaking at the Edge Group‘s investing conference in London, which was raising money for Alzheimer’s research. “They buy into price weakness and sell into price strength.” For over 40 years, Muzea has tracked insider activity to make better investment decisions. In that time, he’s advised the legendary investor George Soros and even hosted his own TV show, the ‘Muzea Insider Report’.
Meanwhile, special situations and activist investing will play outsized roles coming out of the pandemic, according to panelists at a conference on Thursday hosted by The Edge Consulting Group. Stocks including Uber Technologies Inc. and General Electric Co. contain hidden value that could be unlocked as the economy normalizes, investors and analysts said at the non-profit event benefiting The Alzheimer’s Association.
“A lot of people take a look at the academic research and say ‘If you bought all the spinoffs, did you outperform the market or didn’t you?’” Joel Greenblatt, co-chief investment officer for Gotham Asset Management, said in a presentation. “I think that’s the wrong question. The right question is ‘Are spinoffs a place to find mispriced securities?’”
Three industry giants, GE, Johnson & Johnson, and Toshiba, announced this week their split into several companies, a fundamental move, demanded by the financial markets, intended to provide consistency and readability, while favoring the sectors of growth. “This illustrates a trend which has been at work for more than twenty years and which pushes companies to focus on a single market”, analyzes Michael Useem, professor at Wharton University and specialist in industrial restructuring. For him, this series of announcements “will underline the fact that the diversified conglomerate, even if it occupied a huge place in American economic history, is on the verge of extinction.”
But not all self-carving conglomerates are suffering. “J&J is a great company,” recalls Jim Osman, director of The Edge and specialist in “spin-offs” (part of a whole is separate from the rest). “There is no good and bad activity” within the group, he insists. “There are two beautiful branches that they think can shine on their own.” For him, the sequence is linked to the evolution of Wall Street, which has been flying from record to record since the beginning of the year. “Companies try to create value with spin-offs when you are near highs on the stock market,” he says. “This is normal. You can no longer derive growth” from the share price without upsetting the very structure of the company.
Companies all of a sudden seem to have a burning desire to break up. Investors get excited revaluing stocks, searching for hidden value that can boost portfolio returns. They shouldn’t. It’s a sign of a market top.
DuPont (ticker: DD), General Electric (GE), Johnson & Johnson (JNJ), and Toshiba (6502.Japan) are four of the latest companies to announce breakup plans. All have all announced some major transformation in the past few days. DuPont is buying a high-growth business and spinning off a low-growth business. GE and Toshiba are breaking up into three. J&J is separating out its consumer-health business—think baby powder in one company, and pharmaceuticals in the other.
That’s more than $600 billion in market capitalization that believes being smaller is better.
The price action makes sense, according to Jim Osman, founder of research firm The Edge. Osman’s firm focuses on special situations such as spin offs. “Historically, what we’ve see, there is a plethora of spinoffs that happen in two situations: [market] tops and bottoms,” explains Osman. The spinoffs happening at the bottom are usually great for investors, offering hidden values at distressed prices. That isn’t what’s happening now, in most situations.
Johnson & Johnson (JNJ.N) plans to spin off its consumer health division that sells Listerine and Baby Powder to focus on pharmaceuticals and medical devices in the biggest shake-up in the U.S. company’s 135-year history. The move by the world’s largest health products company follows similar announcements by conglomerates Toshiba(6502.T) and General Electric(GE.N) and underscores how big, diversified corporations are under pressure to simplify their structures.
“Historically, when the market becomes fully valued, we see a great number of spins being announced as companies look for alternate ways of creating more shareholder value,” said Jim Osman, founder of research firm Edge Consulting Group. “It’s something worth noting for the investor.”
Donald Trump’s latest deal sparked a retail trading frenzy and led some to argue that the former US president is making SPACs great again. After it was announced that Trump Media & Technology Company will go public by merging with Digital World Acquisition Corp., shares in the blank-check company soared by over 1,000% to the $130 level. That briefly gave Trump’s new venture an implied value of over $8 billion. A Special Purpose Acquisition Company, or, raises capital through a public listing before merging with an existing firm. These vehicles surged in popularity earlier this year, with 298 SPACs priced in the first three months of 2021, although activity levels have fallen in subsequent quarters.
One investment firm made $136 million on paper because they previously owned DWAC shares, while Bloomberg reported that two retail traders it spoke to made at least $12,000. Analysts compared the surge in investor interest to companies like GameStop and AMC, which achieved ‘meme stock’ status earlier this year. “DWAC is certainly attractive to the day-trading Reddit speculator set,” Julian Klymochko, whose firm Accelerate Financial Technologies offers a SPAC exchange-traded fund, told Insider in a recent interview. “Over the past week it was the second-most traded stock behind Tesla — and everyone knows that people like to speculate on Tesla.”
Jim Osman founded the Edge Consulting Group, a research firm that analyzes special-situation investments. He agreed that DWAC has quickly achieved meme-stock status. “GameStop is a great analogy,” Osman told Insider. “In fact, this could be the first meme SPAC.” But that status means investors should be extra cautious before placing their bets. Insider spoke to Klymochko, Osman, and other experts about DWAC’s price volatility, Trump’s plans for a new social media platform, and the future of the SPAC market.