These IPOs Are Crushing the Market by 40%

Dealogic says 2019 is still on track to be the richest year for IPOs since 2014. But you have to know how to play it…

The mainstream financial media is clearly having a bearish moment when it comes to initial public offerings (IPOs). In story after feature story, you're bombarded with the idea that anyone who's excited about a big-name IPO is just setting themselves up for disappointment.

On paper, that narrative makes sense. WeWork‘s attempt at a $47 billion debut was farcical; its valuation plummeted to $14 billion before the offering was abandoned.

Then there's Peloton Interactive Inc. (NASDAQ: PTON). Shares dropped 11.2% in its first day of trading on Sept. 26 – a decline that, according to The Wall Street Journal, directly influenced the decision of Endeavor Group talent firm to put off its own IPO. Insiders were obviously terrified of “poor market conditions.”

But these were simply two bad IPOs, two expensive failures that had Wall Street wringing its hands.

The truth is tech and life sciences firms are still IPO leaders; that segment of the market is actually doing much better than stocks overall.

And if you snatch up the shares I'm about to recommend, you'll be ahead, too…

Only the Very Best IPOs Are Accepted Here

I'm talking about the First Trust US Equity Opportunities ETF (NYSEArca: FPX). The fund's managers say they've captured 85% of the value of all stocks that have gone public over the past four years.

That's a pretty comprehensive approach that almost no retail investor can match.

Strictly speaking, FPX doesn't specialize in new tech or life sciences stocks. Instead, it seeks to mirror the broad market for new issues.

Now, I love tech stocks – and 60% of FPX holdings are in tech and life sciences – but the added exposure is a good thing. FPX gives us a good combination of tech-centric stocks and broad diversification. That makes it a great “twofer.”

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

The average market cap is $8.9 billion, small enough to offer lots of price appreciation but large enough to have healthy liquidity and volume. And the managers have been smart enough to acquire stocks at enviable entry points.

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

  • Alcon Inc. (NYSE: ALC) is the world's largest eye-care health company, and it has a big demographic trend in its favor. Alcon estimates that 5 billion people could be nearsighted by 2050. That's half the planet's projected population. The firm is getting double-digit sales growth from emerging markets, driven by China, Brazil, and Russia, as greater affluence leads to more spending on eye care.
  • Hewlett-Packard Enterprise Co. (NYSE: HPE) is a play on artificial intelligence (AI) and supercomputing. It's a legacy firm that traces its roots to the original Hewlett-Packard Co. founded in Palo Alto, Calif. – that's Silicon Valley – back in 1939. Hewlett-Packard is a spin-off from that firm and recently joined forces with another famous player in the field. Last May, it said that it's buying supercomputing legend Cray. Accenture says AI-driven supercomputing will boost economic activity by $8.3 trillion in the United States alone by 2035.
  • Okta Inc. (OKTA) provides cloud-based security for a roster of famous clients like The Western Union Co. (NYSE: WU), Fresh Del Monte Produce Inc. (NYSE: FDP), and the Federal Communications Commission. It's also partnered with industry giants Amazon Web Services (AWS) and Palo Alto Networks Inc. (NYSE: PANW). It boasts a total client roster of more than 7,000 companies. They are no doubt attracted by the fact that Okta gives them access to more than 6,000 pre-built cyber integrations.
  • PayPal Holdings Inc. (NASDAQ: PYPL) is a one-stop shop for cutting-edge commerce tools, 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.

Recently trading at around $75.89, FPX is actually priced cheaper than many of its portfolio holdings. And for all its performance, you won't pay a premium to own it; the management fees on the fund come in just shy of 0.6%. This makes it an extremely cost-effective way for retail investors to cash in on an IPO market that's stronger – much stronger – than the media suggests.

How much stronger? Well, depending on the time frame you're working with, FPX generally beats the S&P 500 by anywhere from 15% to 40%.

So let the financial media frown on IPOs all they want. In my view, that only makes FPX even more attractive. It's a screaming buy at these levels, and if you happen to already own it, by all means, add to your position before 2019 is out.

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