Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

IPO

An IPO is an Initial Public Offering. This is the initial sale of stock to the public from private investors and holders of the company. There are several reasons why a company would issue stock to the public. Publicly traded stock allows the company to offer shares in mergers and acquisitions, easing the mechanism in purchasing other companies and lowering the cost. Publicly traded stock also allows the company to offer incentives to employees, by giving shares of stock. The greater exposure and publicity also help retain and attract talented employees and management. The value of a company is also higher compared to when it’s private. This is because increased levels of liquidity and transparency are more attractive to investors, who will allocate a higher multiple for the company’s value. The biggest downfall to a company issuing stock to the public is greater scrutiny from investors, as all financial records are made public. This comes in the form of an increase in legal and marketing costs, plus time spent with analysts and other investors explaining the inner workings of the company.

NASDAQ, Russell 2000 Signaling Buying Opportunity Ahead?

By for Profit Confidential

Why I'm Concerned About the Stock Markets Near-TermFolks, I’m beginning to get somewhat concerned about the stock market in the near-term. I’m not saying the stock market is going to crash, but there are some technical indications of a possible correction or adjustment in the near-term.

The S&P 500 recently traded at a new intraday record, but the key stock market indices have declined in three of the last four sessions. What makes matters worse is that the downward slide in the stock market was associated with higher-than-average trading volume, which is a bearish indicator in technical analysis, as it suggests a pick-up in selling momentum.

We all know that momentum can be good or bad depending on which way the stock market is going and whether you long or short the stock market.

What concerns me is not only what’s happening in Crimea and the concerns regarding the Federal Reserve’s recent actions, which I have previously discussed. (Read “The Stock Market Needs to Do This in 2014 Before I Invest More in It.”) Rather, what really concerns me is that we are now seeing a breakdown on the charts of the momentum technology stocks that had helped to drive up past euphoria in the stock market. We are seeing many of the high-momentum stocks fall by 10% or more. This suggests fragility and a potential downward slide coming up for the broader stock market.

Also, the disappointing initial public offering (IPO) debut of King Digital Entertainment plc (NYSE/KING) Wednesday was a red flag; it suggests that the IPO market may be losing some of its recent appeal or that traders are simply nervous about the uneasiness … Read More

My Top Stocks in the Mobile Gaming Sector

By for Profit Confidential

Why I Believe There Are Better Mobile Gaming Investments Than King Digital If you have ever played the Candy Crush Saga game on your mobile device, you’d realize that the game, along with others like Flappy Birds, are merely a mobile phenomenon that could easily fade away over time once the addiction washes away, based on my stock analysis.

Yet for King Digital Entertainment plc (NYSE/KING), the maker of Candy Crush Saga, the company is clearly jumping with glee that it’s valued at more than $6.0 billion. The stock debuted with its initial public offering (IPO) on Wednesday priced at $22.50 per share, but it quickly fell to $19.17 after the open.

Make no mistake about it: my stock analysis is that King Digital is not worth $6.0 billion—or even half of that. The company generates about three-quarters of its revenues via the Candy Crush game. There are other games, but none have taken off to the degree Candy Crush has. While King Digital says it will look hard at developing another major game, there’s no guarantee that this will happen before interest in Candy Crush fades, based on my stock analysis.

What I suggest you do is look at more established developers of mobile games and applications that are much cheaper and not pumped up like King Digital, as my stock analysis suggests.

Based out of San Francisco, Glu Mobile Inc. (NASDAQ/GLUU) is an interesting small-cap gaming play that holds promise in the growing area of mobile gaming on smartphones and tablets, as my stock analysis indicates. Spending on mobile applications is estimated at around $56.0 billion by 2016, according to Forrester Research. With a market cap of $386 … Read More

The Great Social Media Stock Bubble of 2014

By for Profit Confidential

Allan Greenspan Be Bearish on the Stock Market Right NowA few days ago, I woke up to news that reminded me of the “Dot-com Boom” of the late 90s and early 2000. I’m sure you remember those days—the days when any company with “.com” attached to it received a lot of attention….and a high stock price. Investors bought these stocks without any concern for non-existent revenues; forget earnings.

These days, social media stocks are the new “dot-com” wonders. We recently heard that Facebook Inc. (NYSE/FB) bought “WhatsApp,” an instant messaging application for smartphones, for $19.0 billion. The valuation doesn’t make much sense; the company has only 50 employees, 460 million monthly users, and no clear business model.

Last year, we saw Twitter, Inc. (NYSE/TWTR) do an initial public offering (IPO). On its very first day of trading, the stock price increased by more than 70%. This company lost more money in 2013 than it did in 2012. Twitter’s loss per share in 2013 amounted to $3.41 compared to a loss of $0.68 in 2012. (Source: Twitter, Inc., February 5, 2014.) But investors shouldn’t fear; in the last quarter of 2013, hedge funds got into the game and bought Twitter’s stock.

Dear reader, I’m not saying Facebook or Twitter is a sell. What I am saying is that the behavior we see on the key stock indices, especially for social media stocks, is not sustainable. It resonates with what we have seen in the past—investors pouring money into companies with no business model to generate profits.

In Allan Greenspan’s past words, key stock indices are showing signs of “irrational exuberance.”

I’m concerned about the big picture for key stock indices…. Read More

Top Three Tech-Based IPOs to Watch for This Year

By for Profit Confidential

Where to Watch for This Year's Top IPOsThe last big initial public offering (IPO) in this country was the debut of social media play Twitter, Inc. (NASDAQ/TWTR), which has returned some staggering gains for its initial investors, in spite of an extremely obscene valuation assigned by the stock market. (Read “Two More Internet Stocks to Watch.”)

Yet in spite of the colossal overpricing of numerous IPOs in 2013, the market demand for new issues is insatiable. As we saw in 2013, IPOs are being driven upward by a market that’s looking for growth and a buying opportunity to make some quick returns.

The current bullish sentiment towards the IPO market is not to the same scale as we witnessed back in the late 1990s, when an early allotment of shares of an IPO attracted frenzied buying and a mad dash to buy the stock, even at outrageous prices.

In the current investment climate, there are several ways of playing the IPO market if you are not one of the preferred clients (the top one percent).

When the IPO is hyped up, you should always wait for the stock to come back down after its initial surge. Do not chase hot IPOs on the first or even the second day. This is especially true in cases when the IPO is showing an extreme valuation that doesn’t make sense.

Facebook, Inc. (NASDAQ/FB), for instance, traded at $45.00 on its IPO debut on May 18, 2012, but it subsequently plummeted to $18.80 on October 19, 2012. The company had more than one billion subscribers, so you knew the revenues and earnings would come once the company figured out how to … Read More

Top IPOs to Watch for in 2014

By for Profit Confidential

My IPO Watch List for 2014The market demand for initial public offerings (IPOs) is strong, as investors search for additional sources of opportunities to make money.

While there have been some poor-performing IPOs this year, there have also been numerous stocks that have debuted to stellar gains. With strong market conditions for new issues, we are seeing a rise in the flow of companies wanting to come to the capital markets and take advantage of the current euphoria for IPOs. The reality is that the increase in IPOs also suggests some froth in the stock market that investors need to be careful about.

The biggest and most highly anticipated IPO this year was, of course, Twitter, Inc. (NYSE/TWTR), which has made many of its early investors rich. The stock was priced at $26.00, surged to $45.00 on its first trading day, and is currently trading at a new high above $50.00. The amazing thing is that Twitter doesn’t make money, and there’s no timeline as to when this will happen, as the company tries to monetize its users. (Read my take on Twitter in “How Small Investors Can Still Get a Piece of Twitter.”) Apparently, the stock market doesn’t really care if an IPO makes money, as long as the theoretical potential is there.

Facebook, Inc. (NASDAQ/FB) was another hyped-up social media IPO that had more than a billion users when it first debuted but hadn’t figured out how to make money from them. The stock actually fell down to the $17.00 level from its $45.00 IPO high, but this was a great buying opportunity, especially if you believe the company could turn its massive … Read More

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