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Although all eyes have been on the searing path that benchmark equity indices have blazed in 2021, initial public offerings (IPOs) have had their own impressive bull market.
In fact, Reuters reported in mid-June that U.S. IPOs hit an annual record in less than six months. So if 2020 was the year of the novel coronavirus, 2021 could be considered the coming of age of new stocks.
Not since the mad rush of the tech bubble during the late 1990s to early 2000s have we seen such a pronounced backdrop for IPOs. Not only that, CNBC told its viewers to gird themselves for the possibility of a record-breaking rush of new stocks this fall. And while the exuberance for new public market opportunities may seem to imply a brewing bubble, for the sake of argument, there’s also a case for this ride’s sustainability.
Primarily, the new enterprises launching IPOs are not centered toward one particular segment, such as technology. Instead, you see a rich diversity of new stocks which to my knowledge has no modern precedent. In my work covering IPOs for Benzinga, I’ve seen everything from biotech plays to hair care to even car washes.
While diversity alone isn’t a reason to trust new stocks, it does suggest that economic demand is spread out across various sectors — suggesting a more stable environment for IPOs.
Secondarily, the surge of new stocks has brought additional opportunities for retail investors. True, traditional IPOs tend to bludgeon regular folks because underwriters distribute new issues at their initial offering price to institutional investors for profitability reasons. But thanks to special purpose acquisition companies (SPACs), anybody can take early bird bets; Hence Bloomberg’s labeling of SPACs as the poor man’s private equity funds.
To be fair, anytime you take a step into the unknown — which is exactly the case with IPOs — you’re absorbing substantial risk. Nevertheless, for those who want extra oomph with their speculation funds, here are new stocks with potential long-term gains.
Rent the Runway (NASDAQ:RENT)
Warby Parker (NYSE:WRBY)
Vivid Seats (NASDAQ:SEAT)
Better Therapeutics (NASDAQ:BTTX)
For full disclosure, the very existence of IPOs benefits me because I spend a quarter of my workdays covering the topic. But among the many I’ve analyzed, these new stocks appeal to me as potential long-term winners.
IPOs Set for Major Gains: Rent the Runway (RENT)
Source: Africa Studio/shutterstock.com
After discussing cryptocurrencies, blockchain architectures, biopharmaceuticals and integrated circuits, I jumped at the opportunity to discuss Rent the Runway. The subscription-based service allows users — mainly women — to rent thousands of designer fashions. And while I’m not very knowledgeable about fashion, Rent the Runway gave me a chance to talk about something different.
But beyond my penchant for discussing new stocks off the beaten path, RENT offers serious relevance for the modern up-and-coming consumer. For starters, the sharing economy is massive and will continue to expand as millennials and Generation Z flex their fiscal muscles. Back in 2014, the sharing economy reached a valuation of $14 billion. By 2025, experts project that it will hit $335 billion.
Furthermore, in a private message sent to me by Anya Cheng, founder and CEO of Taelor, she informed me that men are much more willing to spend money on fashion through her company’s subscription-based platform than they would left to their own devices. Taelor is similar to Rent the Runway but focuses on menswear.
If the gents are that enthusiastic about fashion, it’s a safe bet that the ladies are too, making RENT one of the IPOs to consider.
Thanks to the global supply chain disruption that has made everything from used cars to toilet paper much more expensive than they have any right being, the new normal has imposed substantial setbacks for the world economy. But no sector has experienced as much change and pressure as the semiconductor industry. And due to its extreme relevance, semiconductor firms have skyrocketed over the trailing year.
Naturally, one of the top-performing IPOs in recent weeks is GlobalFoundries, a former spinoff from Advanced Micro Devices (NASDAQ:AMD). Between its first public trading session on Oct. 28 through the close of Nov. 4, GFS stock gained more than 35%. Much of this is due to unprecedented demand for computer chips. And while this rampant demand could turn into a supply glut later, it’s all hands on deck for the semiconductor industry right now.
Nonetheless, even if a supply glut materializes, GFS is one of the most intriguing new stocks for another reason: the underlying company finds itself front and center of a hotly brewing geopolitical conflict. With China rattling its sabers over Taiwan, there’s a possibility that the U.S. can get dragged into an armed conflict due to Taiwan’s importance to global chip production.
However, GlobalFoundries is levered away from both Asian countries, giving the company critical insulation that could attract long-term investors.
IPOs Set for Major Gains: Warby Parker (WRBY)
Source: Dev Chatterjee / Shutterstock.com
As one of the more popular IPOs that debuted in the past few months, Warby Parker specializes in low-cost prescription glasses and sunglasses that are high in fashion-forward thinking. From that standpoint, Warby Parker features almost-perfect marketing for the core millennial demographic, who are not nearly as tied to branding as prior generations. Additionally, who doesn’t love a good deal?
One of the interesting side notes about the company is that unlike a majority of the IPOs of this year, Warby Parker direct listed its shares. A key distinguisher of a direct listing is that it involves no underwriters (or middlemen entities to basically gin up interest for the new stocks). Instead, the company sells its shares directly to would-be buyers.
To be blunt, WRBY stock is only slightly above parity from its Sep. 29 debut. However, those who have a longer-term perspective should consider adding it to their portfolio. Namely, myopia is the most common ocular disorder in the world. Furthermore, evidence indicates that global myopia cases will only increase over time.
Admittedly, such a thought process is cynical but it’s also undeniably powerful.
Vivid Seats (SEAT)
I’m going to be straightforward from the get-go regarding Vivid Seats. Among the new stocks issued in recent months, Vivid Seats is one of the most questionable enterprises due to the uncertainties of the novel coronavirus pandemic. As an independently owned and operated online ticket marketplace, SEAT stock requires society to stay on the up and up. Otherwise, a resurgence of Covid-19 cases could spell serious trouble.
Still, it’s hard not to recognize how the pandemic has also helped Vivid Seats become one of the more compelling IPOs of the new normal. As I mentioned in my interview with CGTN America’s Rachelle Akuffo, American consumers essentially suffered a one-year period where they encountered denials of basic social experiences. Thus, we have pent-up demand — commonly termed as retail revenge — with people ready to open their wallets to make up for lost time.
As evidenced by packed stadiums at baseball and football games in 2021, many Americans are ready to return to packed arenas and stadiums for sporting events and concerts. And it’s difficult to imagine that people will voluntarily go back to quarantines and social distancing — not unless we have another outbreak.
IPOs Set for Major Gains: NerdWallet (NRDS)
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NerdWallet is one of the newest IPOs out there on Wall Street, debuting just this week. Therefore, I don’t have the benefit of hindsight to determine what kind of market sentiment NRDS stock commands. While that puts me in a disadvantage, I still believe that NerdWallet will be one of the better-performing stocks over the long haul. You just need to look at the broader development.
Back when the Covid-19 crisis first capsized us, the intuitive inclination was to dump out of the equities market. With what seemed like the apocalypse heading straight for us, engaging in risk-on assets seemed imprudent. But then, something strange happened. Rather than people running away from stocks, they embraced them. Indeed, the Wall Street Journal mentioned that suddenly, everyone became a day trader.
Of course, artificial dynamics such as unemployment extensions and stimulus checks incentivized the shift to the capital markets. Not only that, newcomers were jumping on everything, from blue chips to IPOs to penny stocks. Somebody needs to provide trusted educational information regarding these asset classes, which is where NerdWallet comes in.
So, with demand insatiable for other investment classes as well (most notably real estate), NerdWallet will be kept plenty busy.
Better Therapeutics (BTTX)
Coming to us via a SPAC merger, Better Therapeutics may be one of the few IPOs that give business combinations with shell companies a stronger reputation. While SPACs have been all the rage this year, you can’t ignore the facts. On a year-to-date (YTD) basis, new stocks that have formed through reverse mergers with blank-check firms have underperformed benchmark equity indices.
Recently, though, SPACs overall have performed much better so they can still redeem themselves. Certainly, Better Therapeutics is thus far contributing to this burgeoning narrative, with shares rising from their $10 initial offering price. A significant catalyst for the equity unit’s demand profile is the company’s approach to type 2 diabetes. Rather than targeting the effects of disease, Better Therapeutics focuses on causes.
Particularly, the biotech firm’s cognitive behavioral therapy, which aims to shift cognitive patterns to promote healthier eating and lifestyle behaviors, is truly compelling stuff. With such an approach, Better can help patients not be entirely dependent on management mechanisms, such as glucose monitoring devices. As well, the company can ease up soaring medical costs by again targeting causes rather than just effects.
IPOs Set for Major Gains: Lottery.com (LTRY)
As I mentioned above, SPACs have generally not performed well. But the ones that seemed to break above the mold are from gambling-related enterprises such as DraftKings (NASDAQ:DKNG). Therefore, the introduction of Lottery.com — also by way of a SPAC — would seem to be a long-term winner. However, some important caveats exist to the enthusiasm, as I mentioned for Benzinga:
“To be sure, such gambling platforms have their dark side. As a 2017 op-ed from The Wall Street Journal mentioned, states essentially push lottery tickets on the poor, earning billions of dollars in the process. But because lotteries by nature are low-probability affairs, this system can keep underprivileged communities who lack access to financial education resources in a cynical cycle of poverty.”
While I’m not casting any judgment, you’re probably going to find LTRY stock included in a list of vice stocks soon. That said, if you can tolerate the cynicism, Lottery.com does have substantial upside appeal. Mainly, we’ve become a country of speculators. In fact, just look at how much stock trading on margin expanded this year!
The thing is, the wealth gap in the U.S. is so skewed to the ultra-privileged that speculation has almost become a necessity for survival. So, like it or not, LTRY stock is in it for the long term.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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