In the late 90s, the anticipation of an initial public offering (IPO) was the hottest thing on Wall Street for traders. Get in on the pre-IPO allotment, and chances are you would make tons of money. I still recall the frenzy that surfaced after an IPO, especially from technology stocks.
Fast-forward a decade, and the market anticipation for IPOs is not as frenzy-like. Now traders are more careful to buy into IPOs after their initial debut.
The key to success in investing in IPOs today is patience. Even if an IPO skyrockets after its debut, it is often prudent to wait for a pullback or for the lock-in period to expire before buying, as this is when the initial investors, such as funds and institutions, can sell their shares in the stock market.
A great example of a former IPO star that opened at a high price but subsequently faltered was Internet stock Groupon, Inc. (NASDAQ/GRPN); the stock traded above $30.00 on its November 4, 2011 debut, but fell to as low as $2.60 a year later on November 12, 2012. I looked at the stock as a decent risk-to-reward play, and now the stock has been sizzling on the charts, up 332% from its November 2012 low. (Read “Why There’s No Stopping the Internet Sector.”)
Another example of a highly anticipated Internet IPO was Facebook, Inc. (NASDAQ/FB), which traded as high as $45.00 on its debut on May 18, 2012, and subsequently plummeted to $18.80 on October 19, 2012. But with over one billion subscribers, I considered Facebook to have excellent potential—if the company could monetize its user base, which it’s currently doing with its mobile advertising sales. The stock is now up over 130%, to its initial level when it first went public.
From these two examples, and there are many more, it’s obvious that the key to successful investing in IPOs is patience. These hyped-up stocks were talked up because they have promise and are not fad stocks.
While the IPO pipeline has numerous interesting stocks, the most anticipated are the technology stocks.
Here are some interesting initial public offerings that could debut this year or in 2014. You might want to keep an eye on these.
Airbnb is an online service that allows users to list and rent home-based accommodations instead of hotels.
Dropbox is a service that many of you are probably familiar with and use. The online service allows you to store your files in their cloud and access them from anywhere in the world on any device.
Square is a mobile payments service for merchants who may be on the road or for small businesses that are just starting out. Having seen the service in action at an arts fair, I can say it’s quite interesting. The merchant simply plugs a square adaptor into a smartphone, the credit card is swiped in the adaptor for approval, and voila!—the transaction is done. The California-based company has already made its way into Canada and recently announced its expansion into Japan.