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For years now, I've advised my readers about how the average retail investor should avoid buying high-tech IPOs when they first start trading. When you buy at the open, you really risk losing your hard-earned money.
Problem is, people just can't wait. They want in - and they want in fast.
But a little patience on the right stocks, and you can still play them post-IPO for big returns. When you wait to buy, you can ride the "bounce back" period to huge gains...
Had you followed this advice with the savvy cloud provider I'll tell you about today, you could have made 863% in just a little over five years. But if you bought at the open, you risked losing more than half your capital.
2020's IPO calendar is filling up fast, which makes this the perfect time to give you the best IPO profit strategy to follow - plus share with you the big post-IPO winner that could still double your money if you buy now...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
2020 Setting Up for Heavy IPO Volume
Any companies trying to transition from privately held to publicly traded love to hit the market when prices and buying are high - which is what we have now.
In the third quarter of 2019 alone, we saw 50 IPOs, according to data from FactSet. That followed brisk second-quarter output of roughly 85 IPOs.
FactSet has not issued full-year numbers, but it looks like we had more than 200 IPOs for all of 2019. If 2020 just sees half that many IPOs, we're still talking 100 chances for average investors to get hosed.
Sure, you may miss the occasional rocket ship. But the odds are really against you when you buy in this early.
Back in June, Business Insider listed the 10 hottest IPOs in the first half of the year. I had a hunch, so I went back and looked at each one...
As I thought, every single one had crashed from their highs, declining by 40% or more. Of those, only one came back to start trading above its previous high.
Of course, many IPOs come roaring back after that early-month volatility.
Facebook Inc. (NASDAQ: FB) stock famously fell from $42 on its first trading day to $18 in the months following its IPO. Then it climbed to $220, where it trades now. Luckin Coffee Inc. (NASDAQ: LK) stayed flat for months post-debut this year before nearly tripling in price from $18 to $50.
When to Buy Tech IPOs for the "Bounce Back" Profit
It's much better to hold off for a little more than six months from when the stock hits the market. That's when insiders can sell, an event that usually means a big drop in price.
Then, healthy companies start to see their shares push higher...
The great "bounce back" example I want to show you today is a cloud services provider for the $1.2 trillion drug and biotech sectors called Veeva Systems Inc. (NYSE: VEEV).
Veeva debuted on Oct. 16, 2013 - and six months later was down nearly 60%.
It closed its first day of trading at $37.16, and it finally bottomed out at $18.23 on May 9, 2014.
But as often happens, the stock kept climbing after that rough six months.
From that closing low until the stock reached its recent high of $175.65 last July 12, it went on to deliver an amazing 863% return. In just a bit over five years, an investment of $25,000 would have turned into $215,750.
During that same period, the benchmark S&P 500 earned a respectable 70%.
In other words, our play on cloud services for the life sciences sector beat the market's benchmark by 1,132.9%.
And that brings up the key point I have been making in our chats here...
The road to wealth really is paved with tech. This is the only place where you regularly see massive Veeva-like breakouts - if you know where to find them.
I still see plenty of upside ahead for Veeva. In fact, I think it's set to double from here in just a smidgen over two years, turning that original $25,000 into $431,500.
Establishing a New Niche
You have to hand it to Veeva CEO Peter Gassner. When he founded Veeva back in 2007, he was way ahead of the curve.
But Gassner knew the life sciences sector needed all the help it could get. And he had the perfect background for making that intuitive leap.
Armed with a degree in computer science, he began his career back in 1984 with International Business Machines Corp. (NYSE: IBM).
He then served as a vice president and general manager at the financial software firm PeopleSoft, now a unit of Oracle Corp. (NYSE: ORCL). After that, he became a senior vice president at cloud leader Salesforce.com Inc. (NYSE: CRM).
This is where big money comes into play...
Gassner was in charge of building the Salesforce.com platform, a role that helped the firm go public in 2004. That successful IPO is considered a seminal moment in the short history of cloud computing.
Indeed, it was the first time most investors had heard of the practice of delivering software tools and applications from remote data centers via the web.
Today, Veeva serves a vital role in the entire life sciences sector. Despite its huge potential, the drug industry is filled with time-consuming and expensive headaches.
Consider that the Biotechnology Innovation Organization (BIO), a trade group, looked at 7,400 drug programs by 1,103 companies. The news was not good - just 9.6% of drugs scientists discover ever get approved for sale.
On top of that, a few years back, the Tufts Center for the Study of Drug Development found that it cost $1 billion to get a new drug to market.
Tufts has since updated that study to reveal the field is only getting tougher. It now forecasts that the average drug these days takes 12 years to go from discovery to commercial launch.
When you factor in the impact of failed trials, the average cost of getting a new drug to the public is a staggering $2.5 billion.
With such daunting data, it's no wonder industry leaders are always on the lookout for the kinds of solutions that Veeva provides...
A Lifeline to the Life Sciences
Veeva offers tools to help clients manage the entire clinical suite. Veeva covers everything from collecting and verifying data to making sure clients are ready for any government inspections.
They can really drive down the cost of discovery and shorten time to market. That's why so many top-tier firms are now Veeva clients. We're talking a total of 600 firms.
That kind of success has helped Veeva grow like crazy. By 2016, the firm's sales base had reached $400 million. By next year, I'm expecting sales to approach $1.3 billion.
And from where I sit, I can see yearly sales hitting $3 billion by mid-decade. That's because Veeva is just now pushing into the even bigger industrial market, which is twice the size of its core life sciences sector.
Now you know why I think there's still plenty of upside ahead.
Over the past three years, Veeva has grown its per-share profits by 47%. Just to be conservative, let's cut that rate in half.
And remember: Stock prices tend to track earnings growth. That gives us a double from here in just a tad over three years, which is a very conservative forecast.
At that rate, the original $25,000 will have turned into $431,500. And that means seven years out, that original investment would be worth $863,000.
Like I keep saying, you only need a handful of tech stocks like Veeva to turn you into a high-tech millionaire in just a few short years.
I'll be keeping an eye on upcoming tech IPOs for any that we should consider getting into for the "bounce back" ride higher. And in case you missed it - I recently alerted readers to an amazing opportunity that's been handed to us courtesy of a new government mandate - check it out below...
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About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.