Trading high-profile IPOs is tempting, but loaded with risk, warns Hubert Senters. Most traders should proceed only with caution…but there may be an exception coming soon.
The IPO market is starting to heat up a lot, as we’ve seen Groupon in the news quite a bit; that’s one example. Our guest here is Hubert Senters to talk about that today. Hubert, is IPO trading something I should get involved with?
I hate IPOs for the general public for a couple of reasons. If you are not already issued the stock before it’s released to the public, just right now, it’s not the best environment for IPOs.
You take a look at Zillow (Z), it’s doing terrible. You look at Pandora (P), terrible. You take a look at LinkedIn (LNKD), not so bad, it’s alright; and now you’ve got Groupon (GRPN) on the scene.
Most of them, their best day is their first day. It’s not like the IPO of Google (GOOG) where it just continued to increase in profit, so I would caution any retail investor, if you’re not already issued that stock before it goes public so that you can actually sell it, I would leave it alone and let it either retrace half of where it opened or at least let it make a new high; then you’ll know that it’s going higher than it’s initial public offering price.
Some people would argue that technicals always work, but on an IPO, it seems like technicals might not because there is so much news and other influences there.
I think technicals work. Anytime you look at technicals, you’re always looking at what happened in the past. When Groupon released their IPO, all you had to is look at Zillow, Pandora, and LinkedIn, and you could say “Oh, this is not going to be a pretty picture.” From the get-go, it’s been going lower.
One way to use IPOs is if you can start looking at the IPO the day it’s released and then just watch it every day, you’ll get used to that price action and you can figure out “Alright, is this thing is in a good mood, a bad mood; is it getting weaker, getting stronger, or is it just dead sideways?”
That’s a good, useful tip to use on IPOs because no one has any price history on them.
The one IPO that everybody is waiting for and talking about is Facebook. Is that one that you might make an exception on and trade?
That one might be the next Google. I mean, at least it’s probably going to be hyped up a lot, but I don’t think that Facebook is going to be doing any of the janky math that Groupon did with their accounting to make their numbers look a little bit better.
That one was hyped almost as bad as some of the IPOs in the dot.com days, so Facebook actually may be for real.
That might be one where you make just a special-case scenario and give that one a shot. So far lately, none of them have been successful at all.
What about the idea of finding a competitor or somebody in that same space? Like will LinkedIn benefit from the Facebook IPO, and could you buy LinkedIn because it’s been around for a little longer?
I think you could, but I’d have to look at the fundamentals. I’m more technical than anything, but I don’t know, I think Facebook is going to make a lot more money than LinkedIn. LinkedIn is just the professional version of Facebook.
From a business standpoint, it makes sense, I just don’t know if they’ve got that tipping point type of social equity with everybody else as far as Facebook does. Right now, you’ve people spending more time on Facebook than they do watching TV.
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