Tuesday, July 25, 2023
If there's one IPO that'll go down in history as being overhyped by Wall Street, it's Rivian Automotive (RIVN).
Rivian went public in November of 2021. At the time, it looked like it might become the Tesla (TSLA) of pickup trucks. Shares debuted at $78 and quickly soared to $179.
At that level, Rivian was worth more than Ford Motor (F).
But Rivian had delivered just 156 vehicles! It took another eight months before the company was able to run its production line for 10 hours straight. Not surprisingly, the stock tanked.
Now that the company has turned the corner on production and supply-chain issues, the stock is finally in an uptrend. But it's been a long and brutal wait for early investors. Before bottoming out on April 25 of this year, it had lost more than 90% of its value.
I'm sharing this cautionary tale with you for a good reason:
Wall Street is gearing up to hype another upcoming IPO.
And today, I'll explain why you need to avoid it.
The IPO I'm referring to is for Arm, one of the world's largest semiconductor companies. Arm is expected to go public later this year.
To date, the company has shipped more than 230 billion chips across the world, and its technologies impact about 70% of the world's population.
I've followed the firm for many years and think it's a terrific company. But I'm telling investors to avoid the IPO after it starts trading — at least for several months.
(But keep reading… because I've found a way to get exposure to IPOs with an investment that's crushing the market. More on that in a moment.)
The thing is, it's not unusual for IPOs to sell off like Rivian did. And it doesn't even have to do with the specifics of any particular company…
You see, when companies go public, major shareholders are usually barred from selling their shares for 90 to 180 days, and sometimes as long as a year. This is known as the lockup period, and it exists to stabilize the market for the new shares.
Once this period expires, most insiders take advantage of the opportunity to cash out and sell some of their stock. That pushes the price down — sometimes temporarily, but oftentimes for a longer period of time.
IPOs are crucial to tech and tech investing. They play a vital role in our economy. But buying in the early days of an IPO is fraught with risk.
So now I'll show you a better way to cash-in on IPOs…
You see, there's an easy way to cash in on IPOs without having to pick them by hand. You simply need to invest in an exchange traded fund (ETF) whose managers focus on best-of-breed stocks.
The specific ETF I'm referring to seeks to provide investors with the largest, most liquid US-listed newly-public company stocks in one security. This reduces the risk of ownership while avoiding overlap with core indices.
For instance, the fund's managers say their holdings have no overlap with the S&P 500.That approach is difficult for individual investors to match.
This ETF holds roughly 75 of the largest, high-quality recent IPOs, mostly liquid, newly-listed U.S. IPOs. Each quarter when the ETF is rebalanced, new IPOs are included, and older constituents are removed.
About 60% of the fund's holdings are focused on tech and communications services. Financials and consumer discretionary make up another 25%.
This means the fund ends up investing in some great companies, usually at just about the right time.
In the fund's tech holdings, it counts a leading maker of driver-assistance and vehicle-automation systems for cars. A former unit of Intel (INTC), this company's cameras, chips, and software are used in cars including BMW, GM, Ford, and Toyota, among others.
This firm pioneered the addition of smart chips to otherwise simple cameras, allowing car makers to slot in advanced-automation features without having to develop their own AI platforms.
There's also another great chip company in the ETFs holdings. This one has been around for more than 30 years, but only went public in the fall of 2020.This is a savvy firm that boasts loads of innovation backed by more than 1,250 patents.
Not only that, but it ranks as the world leader in magnetic-sensing integrated circuits (ICs). Simply stated, these are complex chips used for things like sensing position, and for converting magnetic energy into electrical impulses.
Furthermore, the fund gives investors access to a top crypto firm. I've followed this firm for many years and have interviewed the CEO.
The SEC recently filed a complaint against this firm. I doubt the agency will win, but if it does, the stock will get hammered. And if the agency loses, this stock could soar.
Bottom line: this ETF is an efficient way to get exposure to the crypto sector, without worrying about the volatility of various crypto assets.
The ETF also has a solid investment in Web-based tourism and travel.
The risk of tourism and travel companies is that there have been so many complaints recently about thousands of cancelled flights, with travelers not able to make it to their hotels or vacation rentals.
But on the flipside, post-COVID travel is booming!
So investing through this fund removes the inherent volatility created by a rash of negative headlines.
This ETF is a great performer.
To put things in perspective:
The S&P 500 has been on fire, rising more than 18% so far this year.
But this ETF has outperformed the S&P by more than double, with returns of 42%.
Now you know why I'm so enthusiastic about this ETF!
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Cheers and Good Investing,
Chief Investment Officer
Trend Trader Daily