Decoding IPOs and Other Special Situations for Gains
We’ve seen plenty of companies go public to kick off 2021.
With 408 initial public offerings (IPOs) so far this year, investors have been eager to snap up new shares. They think they can make a quick profit as these IPOs soar higher.
And two of these highly anticipated IPOs hit the market just last week: Coursera and Deliveroo.
Coursera is an online education company that works with more than 150 universities to offer over 4,000 courses and more than two dozen degree programs. And Deliveroo is a delivery service for customers to get food from 115,000 restaurants and grocers.
But despite the hype around both IPOs, they had drastically different results in their first day.
Coursera’s shares closed the day up 36% … while Deliveroo lost 26%.
Of course, it’s still early days for both companies. Coursera could drop from here, or Deliveroo could turn around.
But it shows that even a highly anticipated IPO isn’t a guarantee for good results. If a company doesn’t have a strong foundation, it doesn’t matter what kind of promising special situation it has.
That’s why you need to take the right approach when finding special-situation opportunities in the market. And if anyone knows that approach, it’s Charles Mizrahi…
How to Tell the Winners and the Losers
I work closely with Charles to bring the latest opportunities he’s seeing to readers like you. So, I see how he puts his nearly 40 years of Wall Street investing experience to work all the time.
And something he likes to remind me of nearly every day is his simple and logical approach to the markets.
As he says: “Gains might not always come right away. They might take a few months or even a year. But you want to invest in the companies that’ll pretty much be big, slam-dunk winners with time.”
These companies are usually innovative leaders in growing industries that go on to dominate their markets. That’s one of the main things Charles looks for in his approach when finding new opportunities.
Looking through this lens, you can see why Coursera’s and Deliveroo’s IPOs went in the directions they did…
Coursera has been disrupting the education industry for a while now. As one of the first main movers into the digital and remote learning space, it’s poised to gain significant share of a growing market with extra demand thanks to the pandemic.
And as many classrooms stay online or adopt a hybrid model, that should continue.
Meanwhile, Deliveroo faces lots of competition from companies such as DoorDash, GrubHub and UberEats. And most delivery service business models aren’t very profitable — even with the added pandemic demand.
Not to mention, as restaurants reopen and restrictions are lifted, that demand will likely decrease as well.
This is why Charles sticks to the filters in his approach. Because you have to have a clear focus if you really want to make money from all kinds of special situations…
There Are Better Options
Special-situation stocks have catalysts — reasons that they will close the gap between their prices and the underlying worth of the business.
Having a good catalyst means that the stock will close the gap much more quickly than usual. A special-situation stock with a good catalyst can shoot up by double or triple digits in a short time.
These catalysts create big opportunities for investors. And the only way you can tell if a company has a catalyst like this or not is if you know and understand the business and its worth.
Charles’ approach is an essential foundation to figuring out what a business is worth. It’s why he spends so many hours looking into industries with strong tailwinds and finding the companies paving the way.
Once he does, he also pores over their financial statements and looks into their management teams. Only after a company checks all of his boxes does he look for that additional catalyst. And when he finds one, he makes sure to share it in his Lifetime Profits service, which is dedicated completely to special-situation stocks.
For example, in October 2019, Charles recommended leading software company Nuance Communications.
It was well positioned in the growing software and tech space. And it had great management and rock-solid financials.
The icing on the cake was its special situation: It was spinning off a business segment to streamline its focus. And Wall Street was missing the big picture. So much so, that Charles also made sure to recommend the spinoff company — automotive tech firm Cerence — in December 2019.
Today, Lifetime Profits subscribers are seeing gains of over 200% and 350% on Nuance and Cerence, respectively, in the model portfolio. Keep in mind, both companies are trading well above Charles’ recommended buy-up-to prices. So, we don’t recommend you buy into them now.
But they’re great examples of how you can profit big when special situations come around — if they have the right foundations. And Charles can continue to show you how in Lifetime Profits.
In fact, he’ll be sending out his next recommendation tomorrow. It’s an innovative leader in the home solutions market. And it’s flying under Wall Street’s radar thanks to several catalysts. You won’t want to miss out on another opportunity. To make sure you have the chance to get in on it, click here to learn how to get started.
Senior Managing Editor, Alpha Investor