They're called "SIPO" stocks.
They pack a massive profit punch.
And they're one of Wall Street's best-kept secrets.
In fact, Wall Street's faceless investment banks would be just as happy if you didn't know that SIPO stocks existed.
That's why it took an ex-Wall Streeter like Shah Gilani to break the silence, and to bring these stocks - and the profit opportunity they represent - right to you.
"SIPOS are as close to an entrepreneur's fantasy as you can get, without the uncertainties that come with their cousins - IPOs," says Gilani, a retired hedge-fund manager and Money Morning columnist whose investigative essays have helped thousands of Main Street investors dodge Wall Street's ruinous cons. "If you're looking for relatively low risk, deep value and multiple paths to profitability for the company and your investment, SIPOS are virtually in a category all by themselves."
That's why Gilani has created a new advisory service (click here to find out more) that's designed to exploit this hefty profit play - albeit one with a surprisingly low-risk profile.
The Lowdown on SIPO Stock Profits
Just how profitable are SIPO stocks? For nine straight years and counting, stocks in this obscure market niche (and one that's government-regulated, at that), have trounced the Standard & Poor's 500 Index by a stunning margin of more than 3-to-1. They've generated an aggregate return of 170%, compared with 50% for the broad-based S&P, according to Bloomberg LP.
And SIPO stocks don't just trounce the broad indices; they also outperform such popular investment sectors as technology, healthcare and energy - and quite handily, too.
On one level, it's easy to understand why these stocks generate such huge returns. You see, they are a distant cousin to initial-public-offering (IPO) stocks - the glamorous category of newly public shares that can notch explosive gains in their first days of trading.
But because they are such distant cousins, there are also some major differences between IPOs and SIPOs. First and foremost, while winning IPOs often grab headlines with stratospheric first-day gains, most IPO deals don't enjoy that kind of success. And that can make IPOs a very risky proposition.
Second, the good IPO deals are almost impossible for retail investors to get a piece of. And even if you do get into a good deal, your allotment is likely to be small.
None of that is true with SIPO stocks.
Indeed, there are three factors that make most SIPO stocks quite profitable - a reality that makes them an alluring play for the typical Main Street retail investor. SIPO stocks are:
- Plentiful: Although there are probably a maximum of 30 SIPO stocks that come available in any given year, the fact that the category - or its profit potential - isn't widely understood outside Wall Street means that you will be able to obtain a position in any one you want. In fact, for the most part, you can buy these on the open market - none of this having to get in line or seeking an allotment of shares. In short, with SIPO stocks - unlike their IPO brethren - you can decide how many shares you want to own, and when you want to buy them.
- Predictable: Ironically, a federal financial regulation governs what institutions can hold them, and in what quantity. For someone who understands how to analyze these stocks, that fact alone makes it fairly easy to predict SIPO-stock performance - as a group and on an individual basis.
- Profitable: In fact, had I not been trying to stay with the whole "P"-themed alliteration motif here, I would have labeled this sub-section as "highly profitable." Study after study demonstrates that SIPO stocks are strong performers - and can even show investors the optimum time to buy them after they become available. The stocks themselves tend to be strong performers - and many end up being takeover targets, capping off a nicely profitable holding period with a huge final windfall.
A Unique Opportunity
So what's the catch?
Actually, there really isn't one. But there are some considerations - some issues to keep in mind to make sure you make the very best of this largely ignored profit opportunity.
First and foremost, although there are many SIPO opportunities each year, the big trick is really separating the treasure from the trash.
Then there's the timing issue. The federal rule that regulates the SIPO-stock holdings of institutional investors actually gives you an advantage over Wall Street - really one of the only instances of any kind where that's true. To capitalize on - and to maximize - that advantage, you need to buy at just the right time.
Finally, there is a strategic element. In addition to the normal issues such as which one, when, and how much to buy, the very predictability of SIPO-stock trading patterns will sometimes present a "double-gain" opportunity that you won't find with any other kind of stock.
In those cases - though this is a vast oversimplification - you might actually want to "short" the shares initially, profiting from an expected decline; then you would turn around and buy the shares, profiting the second time when their prices increase as expected.
There are even opportunities to use options as a proxy for the actual shares, both to manage risk and to magnify profits.
This is the real beauty of SIPO stocks: No matter what your income level, portfolio size or risk-tolerance happens to be, you will find a low-risk/high-profit investment opportunity available to you in this little-known stock-market niche. And beginning investors and sophisticated individual investors alike will both find that the coveted advantage over Wall Street is there to be exploited.
But it is worth having a guide - especially someone who knows the back passages and secret trap doors of that hallowed financial center known as Wall Street.
Just ask Gilani, an old Wall Street hand himself - and one who will be glad to be your guide.
Said Gilani: "There aren't many investment opportunities that flower like SIPOs - over and over again."
For more specifics on SIPO stocks, as well Gilani's insights on how to play them, please click here.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.