As WSJ reports, 74% of all IPO’s today are not making any money and/or are not profitable. Guess when that happened before? That’s right, right before the 2000 Nasdaq collapse.
But don’t worry. It’s different this time. After all, the investors are “NOT Scared” this time around….whatever that means. This is just another indication that the bear market is about to start and destroy bulls. Particularly, those playing in the IPO market. Earlier today I posted a good “Short List” that should get you started.
Since January of this year I have argued that the Dow Jones topped out on December 31st 2013 at 16,588. We continue to maintain this position as it is based on our precise mathematical and timing work. With the Dow pushing this level again, it is up to you to figure out what happens next. However, if you would like an exact breakdown and bear market composition of (2014-2017) please Click Here.
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Unprofitable IPOs Don’t Scare Investors…Great Google
A hot IPO market isn’t necessarily an optimistic development for the aging bull market.
Companies are going public at a pace reminiscent of the 1990s Internet heyday, a positive sign for young companies aiming to cash in on the rallying stock market. But analysts say the underlying mix of companies rushing to go public represents a warning sign for the stock rally.
Some 74% of companies that went public over the past six months weren’t profitable, the highest level since March 2000 when about four out of five new companies were money-losers, according to Jason Goepfert, founder of Sundial Capital Research and author of the SentimenTrader Daily Report. That same month, the Nasdaq Composite peaked before tumbling into a deep bear market as the dot-com bubble burst.
Since 1990, 42% of companies that have gone public, on average, haven’t been profitable, Mr. Goepfert says. In the early-to-mid 1990s less than 1/3 of these companies didn’t generate profits. This percentage rose through the tech bubble, fell afterward and rose again through the 2007 market peak before tumbling to as low as 15% in October 2009, seven months after the bear-market bottom.
In the past several years the percentage of unprofitable companies going public has hovered predominantly between 55% and 65%. It moved back above 70% early last month.
“This kind of behavior is troubling,” Mr. Goepfert said. “Not only do we have a willing public market ready to provide capital to these companies, but in many cases these are instances of professional investors selling their claims to a less-sophisticated public,” he added.
The list of newly minted money-losing public companies in the past six months includes microblogging platform Twitter Inc. and cybersecurity firm FireEye Inc.FEYE -0.08%Twitter shares have more than doubled off the IPO price; FireEye has more than quadrupled.
Investors don’t seem too perturbed by the trend. If anything, recent IPOs boast better returns than the broader market. The average U.S. IPO this year rose 19% from its debut through Feb. 28, and 5% from where it closed after its first day of trading, according to Dealogic. The S&P 500 index, meanwhile, has edged only slightly higher for the year.
To be sure, the IPO market has a long way to go before reaching tech-bubble levels. In the first two months of this year, 42 companies went public in the U.S., compared to 77 in the same period in 2000, according to Dealogic.
That’s why many stock investors aren’t willing to turn bearish right now.
In his weekly commentary, BlackRock strategist Russ Koesterich didn’t sound enamored with stocks, but he still considered them to be better than other alternatives.
“To start, we would say equities are no longer cheap and that stronger economic growth will be needed to drive earnings and prices higher,” he said. “But we do believe stock prices are more likely to head higher rather than lower from here,” Mr. Koesterich added, while cash investments “are effectively paying nothing, and traditional areas of the bond market offer little return after factoring in the effects of inflation and taxes.”
Even with a pricey stock market and an increasingly frothy IPO market, the fact that inflation and interest rates are low and the economy is gradually improving offers “sound arguments for overweighting stocks,” he says.
Morning MoneyBeat Daily Factoid: On this day in 1888, a brutal blizzard smacked the Northeast, resulting in a shutdown of communication and transportation lines along the U.S. Atlantic Seaboard. More than 400 people died from the storm.
