Wall Street is salivating over the upcoming public debut for Snap Inc.
And who can blame them?
The initial public offering (IPO) for this developer of the popular instant-messaging service Snapchat will likely be huge.
And I'm not exaggerating.
Also salivating: thousands and thousands of retail investors... and maybe even you.
But hold on...
As a longtime Silicon Valley insider, I love IPOs. If you're an investment banker, venture capitalist, or company insider, you can make a fortune with them. (Plus, nothing keeps a bull market running like popular new issues that bring fresh cash out of the sidelines.)
However, most investors should avoid buying Snap - or any other company going public - at the open.
At that point, you're likely to pay top dollar and very well could see the value of your investment drop immediately and steeply.
No fun.
But we've got a way around that.
In fact, we've got a way to cash in on the Snap IPO with none of that risk.
It's an investment that will bring you many years of profits.
And you can get in right now...
In May 2015, Snap CEO Evan Spiegel announced he intends to take his company public. Although he didn't offer many specifics at the time, it was the first time any company official mentioned going public.
Although we don't have an exact date yet, we know most of the specifics.
You can find them here, in an excellent free guide to the Snap IPO - its recent financial performance, its shareholder rights, etc. - that my colleagues at Money Morning put together.
Started as a class project for Stanford University in 2011 by then-students Spiegel, Reggie Brown and Bobby Murphy, Snapchat has grown to become one of the fastest-growing social media platforms ever.
Over its pre-public life, Snap raised nearly $2.63 billion over eight rounds of funding from 24 investors, including Glade Brook Capital Partners, Benchmark, General Catalyst Partners, Kleiner Perkins Caufield & Byers, Lightspeed Venture Partners, and SV Angel.
Snap, which will be traded on the NYSE under the SNAP symbol, made $404.5 million in 2016, which beat analyst estimates of $350 million by 15.42%.
By 2017, it could generate nearly $1 billion in revenue. By 2018, it could generate nearly $2 billion.
However, Snap isn't profitable right now...
It generated $58 million in revenue for 2015 but reported a net loss of $372 million.
In 2016, Snap reported a net loss of $514 million.
That's a 38% year-over-year increase in net losses.
Beyond the usual hazards that come with trying to play IPOs in their early stages, that makes Snap a risky investment.
And that's why I'm showing you something different today...
When I say that the real IPO money is made by investment bankers, insiders, and VCs, I'm not exaggerating.
Consider this...
In its recent IPO filing, Snap suggested an offering price of $16.33, setting up a valuation of roughly $21 billion. But let's break that down so you can see firsthand how hard it is for regular folks to profit the day a stock starts trading:
If I sound like a "hater" here, don't get me wrong...
I love IPOs. They're one of the main reasons Silicon Valley is able to bring us a steady stream of innovations.
Where else can young entrepreneurs go from running struggling startups to heading up cash-rich publicly traded firms in just a few years?
And you'd be hard pressed to find a better IPO environment than we have right now. After a weak start in volume, the IPO class of 2016 made up for it in the end with great returns.
The average new issue gained 23% from the time it started trading until year's end, according to Renaissance Capital. That's the best showing in three years, and well above the 10-year average of 14%.
Those kinds of gains leave investors thirsty for more IPOs, and firms are clearly responding. Snap is just one of 154 startups valued at $1 billion or more, according to Wall Street Journal data, and many of those "unicorns" have signaled plans to go public in coming quarters.
That's why I believe right now we should all take a look at this...
I think every tech investor ought to consider holding First Trust U.S. Equity Opportunities ETF Fund (NYSE: FPX) - formerly known as the First Trust U.S. IPO Index Fund - for the long haul
With it, you can grab the upside and excitement that IPOs offer - and sidestep all 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.
Let's be clear about one thing. Strictly speaking, FPX doesn't specialize in new tech stocks. Instead, it seeks to mirror the broad market for IPOs.
That's fine - in fact, it'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.
A fund that holds 102 stocks, FPX also gives us access to finance, auto, retail, heavy industry, energy, and even some metals.
Indeed, around 45% of the FPX's holdings are mid-caps with and the average, and its average holding is worth $20.2 billion. To me, that says the managers have been smart enough to acquire stocks at solid entry points.
Kraft Heinz Co. (NYSE: KHC) is currently FPX's top holding, accounting for 10.05% of the fund. Not so "tech." But social-networking leader Facebook Inc. (Nasdaq: FB) remains a top holding as well, at 3.58% of the fund.
Let's take a look at some of the other exciting tech names FPX holds...
Now trading at around $57, FPX is priced cheaper than many of its portfolio holdings, making it a cost-effective way for retail investors to cash in on the coming IPO boom.
Over the past five years, FPX has returned 110.7% to investors, beating the S&P's 74.7% gain in that time by 48.2%. And just over the past year, it has beat the S&P 500 by 49.8% - with its 31.6% returns demolishing the broad market's gains of 21.1%.
I see no reason FPX can't maintain that leadership in 2017, considering how active the IPO market will become.
And considering that its managers will likely be sweeping up Snap into their fund on Day 1.
Plus - with an expense ratio of 0.6, a five-star rating from Morningstar, and a rebounding IPO market - FPX meets all three of our ETF Profit Screens.
That makes this the kind of ETF you want to hold for the long haul in order to tap in on the steady stream of new innovations represented by the booming IPO market.
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The post There's One Way to Cash In on the Snapchat IPO - Without Buying SNAP appeared first on Strategic Tech Investor.
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...
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.