Several trends will define equity markets in 2021. One will surely be the success of new stocks that have made their debuts in the markets. Investors have pushed many of these young companies to all-time highs in a matter of weeks, if not days. Therefore today, we will look at seven new stocks to buy in the coming weeks, especially if there is a short-term decline in their prices.
New research suggests that “coverage in credible financial media and the tone of media coverage about an IPO firm before and after its listing influence[s] its stock performance. Results show that coverage in credible financial media about an IPO firm significantly impacts its stock price.”
So what about all of the new stocks in 2020? Market participants can get a sense for these names via the Renaissance IPO ETF (NYSEARCA:IPO). It provides exposure to a range of newly public U.S.-listed companies, prior to their inclusion in core U.S. equity indices. So far in the year, the fund is up over 68%.
In fact on Oct. 1, it hit an all-time high. With the risk appetite for new issues so high in the market, there is reason to believe the steady flow of newcomers will continue.
There are risks and rewards of buying IPO stocks. Thus, due diligence is necessary on the part of potential investors. Against this backdrop, here are seven new stocks to buy:
- Direxion Work From Home ETF (NYSEARCA:WFH)
- Dun & Bradstreet (NYSE:DNB)
- Global X Nasdaq 100 Covered Call & Growth ETF (NASDAQ:QYLG)
- Lemonade (NYSE:LMND)
- Renaissance International IPO ETF (NYSEARCA:IPOS)
- Royalty Pharma (NASDAQ:RPRX)
- SPDR S&P 500 ESG ETF (NYSE:EFIV)
New Stocks to Buy: Direxion Work From Home ETF (WFH)
Expense Ratio: 0.45%, or $45 on an initial $10,000 investment.
The first of my picks is an exchange-traded fund, or ETF. The global number of novel coronavirus cases has passed 35 million. As nations embrace the second wave of the pandemic, one of the most important consequences of the coronavirus has been the shift toward the stay-at-home and work-from-home trends.
The Direxion Work From Home ETF, which launched in June 2020, provides exposure to companies that are likely to benefit from a flexible work environment.
WFH, which tracks the Solactive Remote Work Index, concentrates on companies in cloud technologies, cybersecurity, online project and document management, and remote communications. The index consists of 40 companies, ten from each industry group. About 94% of the companies come from the U.S.
This ETF started trading at an opening price of $50.08. In early September, it hit an all-time high of $59.40. Now it is hovering around $54. Long-term investors who believe the work-from-home trend has legs may consider buying into this new fund, especially if the price dips toward $50.
Dun & Bradstreet (DNB)
Dun & Bradstreet, a global provider of business data and analytics, started trading in early July at an opening price of $25. In a matter of days, it hit a high of $28.20.
Its history goes back to 1941. Dun & Bradstreet issues companies a “D-U-N-S Number,” similar to a personal Social Security Number (SSN). It provides information reports for more than 100 million companies worldwide and serves mainly the business-to-business (B2B) credit market segment. Its data platform is close to 70% cloud-based.
The group released second-quarter earnings in early August. Revenue was $420.6 million, representing an increase of 5.4% year-over-year. Adjusted net income of $81.6 million translated into adjusted diluted earnings per share of 26 cents.
CEO Anthony Jabbour said, “Our performance for the quarter was in line with expectations and we continue to make significant progress in our transformation that ultimately supports our long-term strategic goals.”
DNB stock is likely to benefit from the company’s emphasis on data on a global basis. Going forward, the business intelligence company could potentially become a takeover candidate, too. Long-term investors may consider buying the dips, especially if the price goes toward the $22.50 level.
New Stocks to Buy: Global X Nasdaq 100 Covered Call & Growth ETF (QYLG)
Expense Ratio: 0.6%
Our next choice is an ETF which follows a “covered call” or “buy-write” strategy. The Global X Nasdaq 100 Covered Call & Growth ETF launched in August 2020.
As a result, this young fund only has about $4 million in net assets.
As part of the unique strategy, fund managers first buy all the stocks in the Nasdaq 100 index. Then they “write” (sell) monthly at-the-money (ATM) index call options on about half of the value of the portfolio of stocks. Such an approach aims to capture about 50% of any upside potential of the index, but also potentially achieves additional income through the premiums received from writing options
Index options have several characteristics that make them different than single-stock options. For example, index options cannot be called early. Thus, only where the index finishes the expiry month is relevant for an investor. The choppiness and the monthly price swings do not really matter. Finally, since index options are settled in cash, there would not be a delivery of the underlying index holdings.
QYLG may be an alternative for market participants who want the yields offered by covered call premiums as well as participation in the upside potential of the index.
Insurance company Lemonade has received a warm welcome in its industry. The group started life in 2016 in New York City as an insurance-tech (“insurtech”) startup.
It operates an artificial intelligence-based digital platform to sell property and casualty insurance. It focuses on renters and homeowners insurance for homes, apartments, condos and co-operatives. In addition, Lemonade provides health insurance for pets. The company has especially become popular with young, first-time insurance buyers and renters.
Earlier in August, Lemonade released Q2 results. Its total customer count grew 84% to 814,160. The company also saw quarterly revenue increase from $13.8 million a year ago to $29.9 million. Losses per share also decreased from $2.09 to $1.77.
Beyond the basics, investors were also happy with news its premium per customer hit $190, up 17% YOY. Lemonade credited higher-value homeowner policies, among other things, for this improvement.
LMND stock is currently trading around $54. In the case of increased volatility in broader markets, Lemonade shares may move toward $45. That is where you can buy the dip.
New Stocks to Buy: Renaissance International IPO ETF (IPOS)
Expense Ratio: 0.8%
The Renaissance International IPO ETF gives investors exposure to a range of non-U.S. listed companies that have recently had their IPOs. None of these companies are included in core non-U.S. equity indices, either.
IPOS, which has 40 holdings, follows the Renaissance International IPO Index. Fund managers review the holdings quarterly. After two years in the public market, a company is no longer eligible for inclusion.
In terms of geographical allocation, China heads the list, followed by Germany, Japan, Switzerland and Italy. Investors should note that China and Germany are not even close. The former country accounts for more than 50% of the fund, while Germany accounts for about 11%.
Since the start of the year, IPOS is up about 33%, which shows investor appetite for newly listed businesses outside the U.S. Investing in IPOs can sound exciting, but can become a risky proposition as well. The risks potentially increase when one considers new businesses overseas. Nonetheless, the fund may appeal to some investors.
Royalty Pharma (RPRX)
New York-based Royalty Pharma started trading on the Nasdaq Exchange in June. Initial pricing for RPRX stock came in at $28, but shares took off. They opened trading at $44, and on June 18, hit a high of $56.50. Now they are hovering near $44.
Over the past few decades, the pharmaceutical industry has been searching for alternative methods of financing for drug development. And that is potentially where Royalty Pharma comes in.
Investment banker Pablo Legorreta founded the company in 1996. It partners directly “with companies to co-fund late-stage clinical trials and new product launches in exchange for future royalties.” And it also “acquires existing royalties from the original innovators.” Many of the royalties held entitle the company to payments based directly on the top-line sales of these drugs.
Any upcoming weakness in the stock price, especially toward the $37.50 level, may provide an opportunity for long-term investing.
New Stocks to Buy: SPDR S&P 500 ESG ETF (EFIV)
Expense Ratio: 0.1%
Our final choice is an ETF that provides exposure to businesses that meet certain sustainability criteria. EFIV, which has 298 holdings, started trading in July 2020.
Terms like environmental, social and governance (ESG) and socially responsible investing (SRI) have entered the mainstream. And a number of exchange-traded funds that integrate social responsibility with investing have become available. EFIV is one of the latest additions.
The fund’s benchmark is the S&P 500 ESG Index. The top three holdings are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN). The top ten holdings comprise about 35% of net assets, which stand at $58 million.
In terms of sectoral allocation, Information Technology (29.9%) tops the list, followed by Healthcare (14.2%), Consumer Discretionary (12.9%) and Communication Services (10.9%).
EFIV opened at $30.15. Now, it is trading around $31.80. The last quarter of the year is likely to be volatile. Look to buy the fund around $25.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.