Predictably, virtually every financial advisor recommends their clients to have a healthy dosing of blue chips in their portfolio. Along with their massive business footprint which provides revenue predictability, equity units with a long track record are easier to gauge. But in exchange for their stability, they provide limited return potential. To really dial up your rewards, though, you may want to consider initial public offerings, or IPOs.
For a brief recap, an IPO is the first time that a formerly private enterprise distributes its equity shares to the public. Typically, such public market debuts revolve around technology firms or other innovative enterprise that promises to improve particular processes or services. Yes, IPOs epitomize the unknown and hence are incredibly risky. At the same time, this ambiguity also affords new issues greater reward potential.
Also, the events over the trailing year have demonstrated that there’s more than one way to go public. For instance, a special purpose acquisition company (SPAC) is a blank-check firm with no underlying operations. Instead, it launches its own IPO in the hopes of merging with an enterprise with a viable business. The two entities enter a symbiotic combination — the merger target provides the business while the SPAC provides public market access.
In turn, the above process helps democratize the rarefied arena of IPOs. In a traditional public offering, financial underwriters earmark new issues to their choicest clients in what’s known as a primary market transaction. On the other hand, retail buyers usually must acquire new shares at the open in a secondary market transaction. SPACs allow anybody to participate in the offering, though post-merger, they have underperformed benchmark indices.
So, understand the facts before you get involved in IPOs. Whether you go the traditional route or not, new issues are risky. Nevertheless, picking the right name could land you some hefty profits. Therefore, here are some ideas for public market debuts that could make you very happy in the long run.
- Context Therapeutics
- Decipher Biosciences
- Caliber Home Loans
- Warby Parker
- Ginkgo Bioworks (NYSE:DNA)
- First Light Acquisition Group
Just as financial analysts warn their viewers about the dangers of penny stocks, I think it’s right to reiterate the speculative nature of IPOs. While not all new offerings are identical, the key similarity is their lack of market history. You really don’t know how shares will react until they do, which is why due diligence and risk mitigation are an absolute must.
IPOs to Watch: Context Therapeutics (CNTX)
Founded in 2015, Context Therapeutics is Phase 2 biotechnology firm specializing in advanced therapeutics to address female cancers. The company features a sole clinical candidate, ONA-XR, developed for the treatment of “ovarian, breast, and endometrial cancer in multiple clinical trials, both as a monotherapy and in combination with other therapeutics,” per a report from Renaissance Capital.
Back in early July of this year, Context announced its terms for its IPO, with it is initial prospectus planning to raise $20 million through the offering of 1.5 million shares at a price range between $12 and $14 per unit. According to Renaissance Capital, at the midway point, Context Therapeutics would “command a fully diluted market value of $94 million.”
More recently in September, the company filed an amended prospectus with the Securities and Exchange Commission (SEC). Context intends to list on the Nasdaq exchange using the ticker symbol “CNTX.”
The company’s CEO Martin Lehr caught the eye of the Philadelphia Business Journal, citing him as one of the “40 Under 40” to watch. Specifically regarding the CNTX IPO, the underlying business is a critical one, with about one in eight (approximately 13%) of women predicted to develop invasive breast cancer during their lifetime.
Decipher Biosciences (DECI)
Based in San Diego, California and founded in 2008, Decipher Biosciences provides genomic testing products for urologic oncology. Early in this year, the biotech firm filed its IPO prospectus with the SEC, disclosing its plans to raise up to $100 million. Per background information from Renaissance Capital:
“Decipher’s prostate cancer genomic testing products, Decipher Biopsy and Decipher RP, provide information about the underlying biology of a patient’s tumor, applying proprietary machine learning algorithms to help physicians improve therapy selection and accelerate adoption of new therapies into the standard of care. Collectively, the company’s genomic tests have been used by more than 3,200 urologists and radiation oncologists, and at all 28 National Comprehensive Cancer Network centers in the US. Six of its clinical indications received Medicare coverage in 2020.”
On a cynical level, what makes Decipher an intriguing IPO is its relevant backdrop. According to Cancer.org, “About 1 man in 8 will be diagnosed with prostate cancer during his lifetime.” Also, the website states that, “Prostate cancer is more likely to develop in older men and in non-Hispanic Black men. About 6 cases in 10 are diagnosed in men who are 65 or older, and it is rare in men under 40.”
So, given the demographic realities of the baby boomer population, this IPO could enjoy serious demand. Decipher plans to list on the Nasdaq under the ticker symbol “DECI.”
IPOs to Watch: Caliber Home Loans (HOMS)
Usually, upcoming offerings mentioned on the IPO calendar provide some basic details for prospective investors to mull over. But in the case of Caliber Home Loans, a residential mortgage producer and service provider, its blank filing doesn’t provide much information.
But what exactly is a blank filing? Not to be confused with a blank-check firm or merger with a special purpose acquisition company, this declarative category is also known as a quiet filing, appropriately enough. Littered with empty spaces, such an IPO prospectus gives “few clues about the real size and scope of its offering,” per the Tampa Bay Times.
What we do know is that in October 2020, Caliber postponed its $345 million IPO. Furthermore, for the 12 months ended Sept. 30, 2020, the company generated $2.4 billion in revenue. As well, Caliber plans to list its shares on the New York Stock Exchange (NYSE) under the ticker symbol “HOMS.”
While the details may be slim compared to other public market hopefuls, the opportunity is extraordinarily enticing. The latest read (June 2021) from the S&P/Case-Shiller U.S. National Home Price Index shows an all-time record high rating — 259 points compared to 184.6 points during the peak of the last housing bubble.
Usually, IPOs represents the culmination of years of hard work on the part of the private enterprise, a true validation that the company has finally made it. In other words, an upcoming public market debut is a celebratory event. Very rarely is it an act of desperation.
Yet, that’s the situation GameWorks finds itself in. According to a write-up from Restaurant Business, GameWorks filed its intent with the SEC to raise up to $15 million in an IPO. This was back in September of last year, when it warned in its disclosure that the company “may not be able to achieve profitability in the near term or at all.”
Adding to such joyous wording, management also warned that the firm “may struggle to remain a going concern, saying it has funded its previously losses from cash flow during strong months, a line of credit from ExWorks Capital and convertible notes issued to some inside the company.”
So, why bother mentioning GameWork, which intends to list on the Nasdaq under the ticker symbol “GMWX?” Basically, its esports-tournament-driven business model could perform well via the retail revenge catalyst. With people eager to socialize and regain control over their usual pre-pandemic activities, GMWX stock could swing higher.
Of course, the fiscal situation is a major concern so only risk-tolerant speculators need apply for this IPO.
IPOs to Watch: Warby Parker (WRBY)
One of the upcoming public market debuts with a confirmed date on the IPO calendar is Warby Parker, which is set to launch on Sept. 29. The company’s shares will list on the NYSE under the ticker symbol “WRBY.”
Unlike your typical IPOs, WRBY will be a direct listing. That means Warby’s offering has no underwriters involved. Instead, Goldman Sachs, Morgan Stanley and Allen & Company serve as financial advisors.
On some levels, it’s a risky proposition. While Warby Parker is a popular retailer of low-priced but fashionable prescription glasses, a CNBC report indicated last month that the company is having trouble earning a profit.
“Over the past three years, Warby Parker’s sales have grown — but so have its losses. Warby Parker’s net revenue in the fiscal years that ended Dec. 31 of 2018, 2019 and 2020 were $272.9 million, $370.5 million and $393.7 million, respectively,” per the company’s filings with the SEC.
Against a longer-term framework, though, myopia — or nearsightedness — is a serious problem. In fact, “recent landmark publication estimates that by 2050, half the world population will have myopia.” Cynically, this bodes well for WRBY stock. Add in potential economic pressures, and low-cost prescription glasses will be even more attractive.
Ginkgo Bioworks (DNA)
Although this is an article focused on upcoming new offerings, Ginkgo Bioworks — an extraordinary biotech firm that just recently launched its IPO via a business combination with a SPAC — is an idea that investors should really consider for their speculation-geared portfolio. If I had to put my money on any new issues this year, it’d be this one.
For greater detail regarding Ginkgo Bioworks’ upside potential, I wrote an extensive piece on the topic for Benzinga. But the immediate factors that you need to know is that the company specializes in synthetic biology, a groundbreaking innovation designed to increase the speed and efficiency of biochemical processes.
Under Ginkgo’s corporate structure, management benefits from two revenue channels, foundry (or biofoundry) and biosecurity. Under the former category, Ginkgo “bends and shapes biology to serve a certain need or reach a goal.” A prime example involves the use of specialized microbes to make an unprecedented amount of spider silk.
In the latter category, Ginkgo utilizes advanced analytics to identify artificially engineered biological threats — a hot-button geopolitical issue but one that’s absolutely necessary to develop given the pace of biotech.
Thus, with Ginkgo being instrumental in helping to develop the Moderna (NASDAQ:MRNA) vaccine, the appropriately named DNA stock is something to keep on your must-watch list.
IPOs to Watch: First Light Acquisition Group (FLAGU)
As a SPAC, First Light Acquisition Group is yet another company that already distributed its shares to the market; hence, it’s not an upcoming opportunity. Nevertheless, at time of writing, Light Acquisition has not yet identified a merger target. So on a technicality, you can say that this shell company is still an aspirational investment.
On paper, SPACs are tricky because while their prospectus may hint at a particular industry — in this case, a business in the defense or security sector — they don’t have to follow through with their initial goals. While you might think that Light Acquisition is a future defense play, it can just as easily merge with a hotdog stand. So please, caveat emptor.
But as I explained in my analysis for Benzinga, the SPAC features a heavy emphasis on the aerospace industry. Per my research, “Aviation-related terms appear 18 times on First Light’s IPO prospectus, while aerospace appears 31 times.” As well, “executives such as Thomas A. Vecchiolia, Admiral William J. Fallon and General James E. Cartwright served as aviators in the military, lending credence to the speculated business combination.”
Plus, if my suspicion is correct that the SPAC could enter the drone market, it’d be aligned with a viable sector. “According to data from Fortune Business Insights, the global military drone market reached a valuation of nearly $10.7 billion in 2020. Naturally, the pandemic imposed a dent on the sector’s demand trajectory. However, by the end of this year, the drone market could be worth $11.25 billion and command a value of $26.12 billion in 2028.”
Still, just be careful about the many risk factors clouding SPACs.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.