15 Stocks That May Be Hurt by This Year’s Big IPOs

These names could suffer as the IPO market heats up

Hot IPO Stocks

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We’re in an unprecedented time when it comes to upcoming IPOs. While the occasional mega IPO heads our way once in a while, we’ve now got a backlog of huge “unicorn” companies ready to hit the public markets. And that makes them important stocks to watch. Unlike the past, where these companies needed funding to grow their business, these IPOs are a way to bring in a new set of investors and cash out the long-time investors that are looking to ring the register.

There are at least seven big-name upcoming IPOs ready to hit the market over the next year, but that may not be a good thing for stocks. The stock market is all about supply and demand. The more supply we bring in, the lower prices goes. The higher demand, the higher the price.

Thanks to this basic principle, we can conclude that, short of investors moving more cash to their brokerage account or investment managers raising more funds, they will have to sell some of their holdings to get a piece of the IPO pie. When it’s one or two IPOs, the market can usually work its way through it. But this number of upcoming IPOs could create a sag on the market.

That doesn’t mean the stock market will collapse or that individual stocks will get cut in half because of it. But this cooling effect can really turn off sentiment. Here are some stocks to watch as the markets address this year’s IPO backlog.

Uber IPO Could Hurt Apple (AAPL), FANG Stocks

Stocks to Watch after Upcoming CEOs
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If Lyft is among the first of the big IPO lineup to go public, it will beat a lot of others to the market. With its IPO valuation likely somewhere between $20 billion and $25 billion (and perhaps even higher once trading starts, assuming we just get a sliver deal), it won’t be the biggest IPO to hit the market.

However, Uber will be when it barges through the gate with a swollen valuation in excess of $100 billion. Some estimates have pegged its valuation at more than $120 billion, larger than Ford (NYSE:F), General Motors (NYSE:GM) and Fiat Chrysler (NYSE:FCAU) combined.

When a company like this comes public, it can have a big overhang on other names. Of course, this overhang isn’t guaranteed, but when fund managers need to free up $500 million here or $2 billion there to get an allocation, they’re going to hit up their “source of funds stocks,” like Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).

If they have a $10 billion stake in GOOGL or Apple, who’s to say they don’t shave them down by 10% to free up some capital to get their hands on Uber? When we see this from dozens of firms, it can have a nasty overall effect.

Pinterest IPO Could Hurt Facebook (FB), Twitter (TWTR)

Pinterest is reportedly eyeing a valuation between $12 billion and $15 billion, although a sliver deal could certainly send the stock surging higher with little regard to valuation.

That could cause fund managers who have lost in Snap (NYSE:SNAP) to sell and try to make up their losses in Pinterest. How about Twitter (NYSE:TWTR), which is down 12% over the past 12 months and down more than 43% over the past five years?

Even Facebook, which has been doing quite well lately, could come under pressure. Long-term fund managers or investors in the name may be tempted to ring the register after such a solid rally. Those who were trapped at higher prices before the bottom fell out may want to bail soon too.

I wouldn’t worry about FB too much in regards to the Pinterest IPO, if it were the only one. With Lyft, Uber and others coming though, it could feel the heat.

Lyft, Slack IPOs Could Hurt Tech Stocks Like Microsoft (MSFT)

Lyft, Slack IPOs Could Hurt Tech Stocks Like Microsoft (MSFT)
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The Lyft IPO will come before the Uber IPO, while Slack is reportedly looking for a $10 billion valuation when it goes public. You can see that it doesn’t take an 800-lb. gorilla (Uber in this case) to sap money from other stocks. We can see it in the accumulation of mid-sized upcoming IPOs.

(Psst … Here are 11 things to know about the Slack IPO).

When tech-focused investors need to raise funds for the $25 billion IPO of Lyft, $10 billion IPO of Slack and $12 billion to $15 billion IPO of Pinterest, you can see where selling becomes a necessity.

Like Apple and FANG, Microsoft (NASDAQ:MSFT) could act as a source of funds for Lyft and Slack, the latter of which is more in-line with Microsoft’s business than Lyft. They are may not directly overlap and MSFT may not feel any needle-moving competitive pressure from Slack, but the IPO could jar investors away from this long-time winner.

Tech in generally, via the PowerShares QQQ ETF (NASDAQ:QQQ) or otherwise could come under pressure too. Maybe investors sell Nvidia (NASDAQ:NVDA), the long-time winner that has badly outperformed since Q4. Perhaps it’s Advanced Micro Devices (NASDAQ:AMD) or even a name like Salesforce (NASDAQ:CRM).

Airbnb IPO Could Hurt Booking (BKNG), Expedia (EXPE)

Airbnb IPO Could Hurt Booking (BKNG), Expedia (EXPE)
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After raising $1 billion at a $31 billion valuation, Airbnb is no small-time private company. The disruptive hospitality tech provider added to its lineup when it acquired HotelTonight for $465 million.

While it would be untrue to say that Airbnb is ruining the hotel market — it’s not — the platform has certainly changed how vacations are done. It has impacted the hospitality market, as well as real estate prices in certain markets.

But if Airbnb comes along at a $40 billion valuation or more, vacation accommodation sites could see selling pressure. Why own Booking Holdings (NASDAQ:BKNG) amid its downtrend and heavy European exposure when someone can own Airbnb instead? Or perhaps consider swapping Expedia (NASDAQ:EXPE), owner of VRBO and HomeAway, to get a piece of Airbnb.

As good as these companies are, we could see funds lighten up on them or swap them out when Airbnb hits the market.

Palantir IPO Could Hurt CyberArk (CYBR), Palo Alto (PANW)

Unlike Airbnb, Lyft, Uber and some of these other well-known IPOs, Palantir has quietly amassed a huge valuation, with some suggesting it could go public at a $41 billion. That’s a massive number, even as the need for cyber security continues to grow.

Cyber security is oh-so-important thanks to the rising complexity of seemingly every device and consumer product — from TVs to SUVs — and the subsequent increasing need to protect them. There’s also corporate technology, personal information, data centers and other areas that are creating high demand for cyber security.

But if Palantir demands a $35 billion-plus valuation when it goes public, it will cause fund managers to free up capital from somewhere.

How about the red-hot Palo Alto Networks (NASDAQ:PANW), one of the largest and most well-known cyber security players in town. Already $20 off its high, shares are still up almost 50% from the lows a few months ago. CyberArk (NASDAQ:CYBR) has almost doubled from its November lows too, and could be a candidate for selling to make room for Palantir.

The Palantir IPO could be a great catalyst for managers to lock in some profit in these names and allocate to a new Wall Street darling.

Levi IPO Could Hurt VF Corp (VFC)

Levi IPO Could Hurt VF Corp (VFC)
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Levi Strauss is searching for a $6 billion-plus valuation as it re-enters the public market. But what does that mean for investors in VF Corp (NYSE:VFC)?

With Levi coming back on the market, what better stock to lighten up on than VF Corp, maker of both Wrangler and Lee jeans. Sales and earnings growth continue to be strong this year, at 12% and 19.7%, respectively.

However, at 20x this year’s earnings and after a 27% rally in the stock over the past few months, it wouldn’t be surprising to see this name (or other apparel stocks) come under pressure.

Postmates, DoorDash IPOs Could Hurt GrubHub (GRUB), Yelp (YELP)

Postmates, DoorDash IPOs Could Hurt GrubHub (GRUB), Yelp (YELP)
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This one is a double-hit, with both Postmates and DoorDash eyeing an IPO this year. Just last month, DoorDash raised capital at a $6 billion valuation, while Postmates filed for its IPO in February with a $1.85 billion valuation.

Assuming we tack on a premium to DoorDash’s numbers, we could be talking about $10 billion between these two names. That may spell trouble for Yelp (NASDAQ:YELP) which has a $2.9 billion valuation and GrubHub (NYSE:GRUB) with its $7.1 billion market cap.

Increased competition squeezes these companies’ top line and margins, but the more stock comes to the market could weigh on the prices as well. A portfolio manager will likely only want so much exposure to names like this. So they’re unlikely to own both GrubHub and DoorDash, and if they do, they’ll have to own the stocks in smaller amounts to limit their risk.

These IPOs aren’t a guarantee to weigh on GRUB and YELP, but it’s certainly possible that they will. And this isn’t all doom and gloom, but it’s worth being aware of the risk that these stocks could come under pressure if these upcoming IPOs flood the market.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL, GOOGL, NVDA and AMZN. 


Article printed from InvestorPlace Media, https://investorplace.com/2019/03/15-stocks-that-may-be-hurt-by-this-years-big-ipos/.

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