The Best Way to Play the Booming IPO Market

On Saturday, maybe you're planning to go for a run, watch some cartoons, or make your family a nice breakfast.

For me, I'll be up bright and early, as I am each Saturday, looking for more profit opportunities for you in the tech world. And this Saturday in particular, I'll be checking out the latest initial public offerings (IPOs).

Let me explain...

It's rare that I don't start working by 7:15 a.m. on Saturdays. It's a great time to look at tech trends and screen a host of stocks when there's no noise from the market.

And every Saturday, I try to update my list of new tech stocks.

After spending 34 years in Silicon Valley and serving as a strategic consultant to a dozen startups, tracking IPOs comes naturally to me.

I want to see if any of my "babies" have graduated.

So, I get the names of newly public tech and life sciences stocks and put them on my post-IPO tracking screen. On Saturday, July 7, alone, I had to input 28 new stocks into my online database.

I didn't spend much time doing that in 2017, which was a weak year for IPOs.

But this year, the IPO market is on fire... and my Saturday mornings are busier.

Led by the successful IPOs of tech firms like Dropbox Inc. (Nasdaq: DBX) in March, and Spotify Technology SA (NYSE: SPOT) in April, tech IPOs are up 92% from last year, according to a report in TechCrunch.

This turn of events is crucial for technology investors like us.

Today I'll show you why that is - and I'll show you the best way to play this hot, hot, hot trend...

A Target-Rich Environment

IPOs can be a dicey proposition for the average retail investor.

Typically, in the first six months of trading, these can be very volatile stocks. That can cause some heartburn.

Furthermore, most investors don't have the discipline to put in a lowball limit order to catch IPOs when they dip from their highs in the early days of trading.

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But here's the thing - IPOs are vital for a healthy market. And there's no question that they can offer tech investors a target-rich environment.

Plus, the profitable strategy that an IPO represents gives Silicon Valley entrepreneurs a great motivation to start new companies. That, in turn, brings us a steady wave of innovations - and, eventually, stocks to buy.

Now, nothing keeps a bull market moving forward like a group of new stocks to trade. These exciting opportunities have a way of pulling fresh cash into the market.

Fortunately, there is a way to cash in on the tech IPO boom in a way that builds your net worth - and allows you to sleep calmly at night.

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So, I'm happy that I had such a busy Saturday morning on July 7.

The numbers were nothing short of stunning...

Tech Is Driving This Market

Dealogic says that in the first six months of this year, some 120 companies have used IPOs to raise $35.2 billion on U.S. exchanges. Mining data that goes back to 1995, the firm says this was the highest volume since 2014.

Tech and biotech IPOs are really driving the market, according to IPO research firm Renaissance Capital. The firm says that when you add biotech and healthcare to the tech mix, you find that they account for roughly 60% of all IPOs over the past year.

Part of the reason for the uptick is that the new tax laws lowered corporate rates and encouraged companies to repatriate huge cash stores held abroad, leading large tech firms to hold the greatest amounts of cash they have on hand ever.

That's leading to a large ramp-up in acquisitions, particularly for private tech firms that have good IPO prospects.

Venture capital-backed IPOs in the United States have reached $6.9 billion at the halfway point of this year, and that figure is only behind the one reached in 2012 when Facebook Inc. (Nasdaq: FB) went public.

This potent IPO market makes it a great time for investors to take a good look at the First Trust US Equity Opportunities ETF Fund (NYSE: FPX). You may know it by its former name, the First Trust US IPO Index Fund.

I think every tech investor ought to consider holding this ETF for the long haul. By doing so, you can grab the upside and excitement that IPOs offer, without all of the volatility inherent in new issues.

In other words, let the fund managers do all the heavy lifting while you sit back and watch the profits pile up.

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Let's be clear about one thing. Strictly speaking, FPX doesn't specialize in new tech stocks. Instead, it seeks to mirror the broader market for new issues.

And that's a good thing. FPX gives us a good combination of tech-centric stocks and broad diversification. That makes it a great "twofer," in which 40% of the top 20 holdings relate to tech or the life sciences.

With a fund that holds roughly 100 stocks, FPX also gives us access to finance, auto, retail, heavy industry, energy, and a smattering of metals.

Indeed, FPX holds around 45% of the fund in mid-caps, with the average holding worth $20.2 billion.

And the managers have been smart enough to acquire stocks at solid entry points.

Take a look at some of the exciting tech names FPX holds...

  • PayPal Holdings Inc. (Nasdaq: PYPL) is a one-stop shop for cutting-edge commerce, offering clients a range of payment and commerce solutions that used to be reserved for big players - like lightning-fast mobile card readers, intuitive point-of-sale systems, invoicing software, business funding, and smart analytics. In 2014, the fast-moving firm bought mobile payments app Venmo, which is popular with millennials and gives it a long-term client base.
  • Zendesk Inc. (NYSE: ZEN) provides an online customer service platform for smaller firms. It's a great sector to be in. Radiant Insights says that outsourced customer service will grow to become an $84.7 billion market by 2020. Back in 2012, Zendesk had just $38 million in sales. By 2015, it was pulling in $200 million a year. By 2020, that figure could hit $1 billion as the firm now targets large firms that also want turnkey solutions.
  • Nutanix Inc. (Nasdaq: NTNX) is a leader in what's known as hyper-converged data centers. This is an infrastructure vendor that can offer its own software and hardware that combine storage and computing on one device and allows for better management of hybrid-cloud systems, with some data on premises and some in the cloud. The 2016 IPO crashed and sold off by 50% before resuming an uptrend in choppy trading.
  • GrubHub Inc. (NYSE: GRUB) is a leader in online takeout and delivery orders. It offers users the chance to order from their desktops or handhelds, get an estimate of delivery time, find restaurants by cuisine, and see user ratings. McKinsey & Co. forecast the segment would grow by at least 15% through the end of 2020. Over the past three years, GrubHub has grown its sales an average 38%, meaning it's doubling roughly every two years.

Now trading at around $73.50, FPX is priced cheaper than many of its portfolio holdings, making it a cost-effective way for retail investors to cash in on the hot, hot, hot IPO boom that looks to continue well into next year.

Over the past two years, FPX has returned 40% to investors, beating the S&P 500's 28% gain in that time by 43%. Better still, reflecting the IPO boom, it has surged 24% over the past year, beating the broad market by 78%.

I see no reason it can't maintain that leadership through 2019, considering how hot the IPO market has become.

This is the kind of ETF you want to hold for the long haul to tap in on the steady stream of new innovations that build wealth - but without the volatility you see in new IPOs.

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The post IPOs Are Booming - Here's What to Do Now appeared first on Strategic Tech Investor | Michael A. Robinson.

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.
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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.

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