I’m asked all the time why I focus so much time and research on the Initial Public Offering (IPO) market. It’s a complicated answer.

If you’ve known me for any length of time or have followed my research in the past, you’ll know that if there is money to be made for my subscribers, I will put the full force of my team of analysts behind it.

And I have worked to bring companies public in the past.

I was on the team that brought Australian company BHP — one of the largest resource companies in the world — public in the U.S.

Understanding how to price shares and how many shares to offer are my specialty.

So, I understand the game from the inside and as an investor.

Let’s face it, IPOs are sexy. It’s the chance to get in on the ground floor of a hot new company as it becomes publicly traded, right?

Well, sort of.

The truth is that most individual investors don’t get that chance, and they often jump on after they see an IPO skyrocket right before it falls back to earth.

IPOs are a glaring example of how the game is rigged against you. When a hot new IPO comes to market, only insiders can get their hands on shares. The bank backing the IPO then hypes it to the moon, driving up investor demand.

Anxious investors who were previously locked out pour in the first day of trading, which sends the stock soaring. Those insiders then make a quick exit, pocketing their hefty gain. Demand dries up and the stock price falls, leaving all those individual investors to hold the bag (Facebook, anyone?).

Unfortunately, this game plays out over and over again.

You can pretty much forget trying to get in on a hot IPO before it starts trading. But if you know the rhythm of an IPO and take the time to research the company going public, you can sort the blockbusters from the bombs by getting in as the insiders sell their shares and before the next leg up.

Let’s take a quick look into the current IPO market and then we’ll get right to the IPOs that are at the top of my buy list.

Does Record IPOs Mean Record Profits?

Calendar year 2021 was actually a record year for the number of IPOs.

According to Factset:

“Year to date (YTD), 2021 has already set new records. Through the third quarter, 785 companies have IPO’d on U.S. exchanges this year, well ahead of 2020’s 555 offerings for the full year. This year’s YTD volume is the highest number seen in FactSet’s annual data history going back to 1995; the previous high was 664 IPOs in 1996.”

As you can see, deal flow has been incredible, even overwhelming. And during that time, all the big U.S. banks doubled or, in the case of JPMorgan, practically tripled the amount of money they raised for clients going public.

You could have simply bought those banks and done fairly well. But buyers just haven’t shown huge appetite for a lot of those deals. Unless you’ve been extremely selective, it’s tough out there.

About 60% of the year’s IPOs have broken, trading below their debut price. If you bought every single deal at the launch, you’d be down about 5% now. You probably haven’t heard much about the losers because they never got a chance to build any buzz before being drowned out by the next day’s deals.

Healthcare and technology were especially egregious when it came to flooding the pipeline . . . between those two sectors we’ve had to absorb one new stock every single trading day of the year and it’s too much. Tech IPOs are barely breaking even and the average healthcare deal is down close to 17%, which is not what I call a target-rich environment.

This is especially significant because healthcare and technology are the core commercial engines of innovation. These sectors are still where wealth is created on the power of nothing but a killer business plan and cutting-edge science . . . where Wall Street expects to see growth continue in the coming year.

Unfortunately, too many innovators means that the pot of gold gets divided too many times.

What happened is that when the venture capital firms saw these sectors soaring last year, they all crowded onto the calendar while the exit was hot.

Those that didn’t have a company to sell went to the SPAC market to raise cash to buy a company. If it was just one or two people with a bright idea, it would have been a great year. Unfortunately, there were hundreds of them selling over $200 billion in stock, demand for new ideas just got buried in supply.

The winners brought something new and actionable to the market. Chinese steel and German electroplate brought investors to the materials sector. Shipping and dirt bikes energized the industrials. Ask yourself, in a year of soaring freight costs, who wouldn’t want to get a piece of a company like ZIM Integrated Shipping Services (ZIM)? Shares debuted at just under $20 in early 2021 and are trading north of $55 in early 2022.

I think Venture Capital investors have learned that it hurts when you crowd the exit and the investment banks are going to shift back to quality . . . but it will take a little time to clear all the junk out of the pipeline. Deal flow has not tapered at all yet, which tells me the underwriters aren’t looking at market conditions or trying to time the launch yet.

They’re simply trying to get everything out the door and collect the fees, pushing the risk onto retail investors in the process. Again, if you simply want a piece of that story, buy Goldman Sachs (GS) or JPMorgan & Chase (JPM) or Citigroup (C). But if you want the kind of exponential return that IPOs have classically provided, you need to buy the companies themselves.

New approaches are preferable to copycats across the board. Show me something unique, a real disruptor. IPO investing is all about disruption. Look for things you’ve never heard before. In many cases, the “first movers” have already gone public, so what’s coming are the copycat stocks that can only be attractive at a discount price.

Not a lot of people bought Lyft Inc (LYFT) except the ones who missed Uber Technologies (UBER) on the initial climb. Neither company has really been a fun ride for shareholders. Don’t let that happen to you.

I think the real disruptive innovation is coming in healthcare, especially remote consultations and home pharmaceutical delivery. There’s room there for some nimble start-up to change the game.

But again, until deal flow lets up, it’s hard to see the compelling opportunities through the noise. It’s not even a matter of evaluating whether any given deal is priced low or high. Investor demand will determine that for you.

To separate winners from the rest, you need to compare each deal to what’s already available on the market. One more social media platform or cloud computing stock is not going to transform your portfolio. Likewise, even speculative themes like space tourism are crowded now.

While there will be scattered exceptions, the SPAC craze has run its course. Too many people raised too much money and are now chasing the same acquisition targets. How well would you say the average blank check IPO did last year?

Most barely broke even from their offering price.

We’ve steered clear of Chinese stocks since the Trade War with very few exceptions . . . and dodged a lot of bullets. The average IPO based in China in 2021 is down 58% YTD. That’s terrifying. And I think it gets worse from here. If you want global sizzle, pivot to India instead.

All of this is to say that there are a lot of pitfalls in the IPO space and decades of experience is what I use to separate the potential winners from the losers.

Sometimes the best time to get in on a hot IPP is on the first day of trading.

ZIM Integrated Shipping Services (ZIM) is a great example of this scenario:

Early investors were rewarded for their efforts and as word got out and trading volume increased, growth moderated.

Here’s one IPO that was among the worst performing of 2021: Bright Health Group (BHG).

BHG is a healthcare insurance company. Nothing too innovative or edgy here. And at no point did investors in this IPO have a chance to make money as shares dropped nearly 80% from the IPO to the end of year.

But as I mentioned earlier, sometimes the smart play is to wait for the IOP dust to settle and then swoop in with your purchase.

For example, one of my favorite recent IPOs is Affirm Holdings Inc (AFRM). Affirm charges merchants — including Amazon and Walmart — to take on the risk of customers who want to pay with installments. Millennials are driving a change in the traditional idea of paying by credit, and investors now have a way to play that trend in the U. S. Affirm allows consumers to split purchases into installments. The company is modernizing the world of payments by offering an option to make purchases over time without incurring interest for consumers.

Affirm makes money on its “0% APR” installment options by taking a cut of the merchant end of the transaction. The idea is that merchants are willing to pay Affirm to conduct risk modeling and offer its service as a way to boost conversion to a sale. The 0% APR options generally nets the company its largest fees from merchants, though it also offers ” simple-interest” loans through which it receives fixed interest payments on the consumer end as well. It works. And I love the company.

Shares started trading in early 2021 and my research said that it was not the right time to buy. Then, about eight months later in August, the tides started to turn for the company and I recommended that my subscribers establish a position.

The company went on a solid run and has pulled back from highs, but I expect great things from this innovative company and it could very well be my next home run recommendation for my subscribers.

So, getting back to the companies that I like right now and that are on the top of my buy list, the main names I’m excited to see are all domestic disruption stories. These are companies that in many cases saw accelerated growth in the pandemic lockdown world. They arrived years ahead of projections and now management is wondering whether it’s time to cash out.

That’s the opposite of what we saw with the previous generation of unicorns, so swollen with early-stage investor cash that they didn’t have to think about where the numbers made sense.

7 IPOs I Can’t Wait to See

If any of these companies sell shares at a price that makes sense, everyone will be able to share the rewards. The question is whether they’ll actually let that happen. And if they need to wait a few years for the market to digest all the shares unleashed in the recent boom, I hope they’ll remain disciplined and forgo the easy exit.

Stripe has been the unicorn Wall Street’s been trying to catch for years now. This might be the year we get our chance. The allure: while a lot of companies are chasing online payments, Stripe is one of the few that has already established a credible presence in the market. I’ve been known to use it myself for my newsletter subscriptions and I’m far from alone.

Revenue hit an estimated $7.4 billion in 2021, up 70% from 2020. That’s the amount Stripe collects in fees, not the number of transactions it processes. Depending on the way the accounting shakes out, half that revenue could hit the bottom line, in which case this stock is worth a lot more than the $95 billion valuation it claimed in its last funding round.

Plaid almost slipped through our fingers two years ago when Visa tried to buy it at what was then a 100% premium. Since then, the company has raised more money and will probably go public sooner or later . . . unless, of course, some Big Tech player decides it wants to make shareholders another offer they can’t refuse.

The allure is that Plaid holds the keys to modern consumer finance: banking, budgeting, payments, accounting and more. Plaid programming actually runs apps from Stripe as well as Venmo, SoFi and other big fintech names. Rumor has it revenue is on track to double this year, which would give it a run rate well above $1 billion. It’s apparently already profitable at this scale, so unlike a lot of unicorns there’s no urgency around raising cash to survive. That’s what I love to see.

ByteDance / TikTok will be the biggest test of my efforts to avoid China in the coming year if it decides to hit Wall Street. TikTok is already a global phenomenon. As a publicly traded entity, its scale and current valuation (officially $140 billion) will force index funds to take it seriously no matter how their managers feel about its data collection policies and content filters.

On that level alone, this will be one of the most interesting debuts in any year its backers decide to take their exit. Remember, Meta was barely a $100 billion company when it went public. TikTok is already bigger.

Roman Health demonstrates two principles that have steered me well: retail investors appreciate stocks they can understand and timing your debut is an art form. The first part is easy: unlike a lot of deep science healthcare start-ups, Roman simply distributes pills by mail and lines up virtual doctor consultations to keep the prescriptions current. That’s it. We can all understand that.

And the founders were smart enough to test that vision on the most lucrative end of the prescription drug market, men’s health. They knew selling erectile dysfunction pills online was where the money is, so they used that to build out their distribution platform. Now they set customers up with weight loss, allergy treatments, COVID boosters.

As for the timing, Roman waited until all the pieces were in place. Rival Hims and Hers (HIMS) went to Wall Street too early and was ignored.

Instacart has been on my radar for a few years, but 2022 might be the moment it finally pushes the button on its IPO. Management keeps delaying the debut because they’re thinking for the long haul, not the instant hit that so many founders have twisted their accounting to achieve.

They know they have a long way to go before the business grows into their paper valuation . . . unless existing shareholders want to take a severe haircut, Instacart needs a lot more than $1.5 billion in annual revenue to survive on the public market. Admittedly, it’s profitable at this scale. What it needs to do now is ride the pandemic boom in home grocery delivery until it shifts from fad to part of everyday life.

At that point, we’re looking at the Amazon of food and I’ll be thrilled to see what the IPO does.

Epic Games follows in the footsteps of Roblox Corp. (RBLX), one of my favorite deals of 2021. Games for kids will always be big business. With Epic, all you need to know is the name of the game: Fortnite, which has turned into a $5 billion platform and arguably the real “metaverse” people like Mark Zuckerberg are chasing now.

This is the social media environment of the next generation: free to download but racking up incremental in-app revenue as players upgrade their experience. They have their own payment system, which made Apple jealous. And the game is immensely profitable, with about half of revenue going all the way to the bottom line.

If Epic were valued like Apple, this would be a $100 billion company. With 400 million active users, it’s just getting started.

Authentic Brands Group will be a blockbuster when it finally goes public, probably in 2023 at the earliest. Right now, it’s extremely modestly valued at barely $12 billion to cover several retail chains ranging from Forever 21 to Brooks Brothers as well as Sports Illustrated and the crown jewel, Reebok.

I’ve been eager to get a piece of Reebok for years. Under the right circumstances, owning that brand now is like owning Apple in 1998, when it was essentially being kept alive to keep regulators away from Microsoft. Now it’s the biggest name on Wall Street. I also appreciate the CEO’s frank approach to timing. He could snap his fingers and go public tomorrow at crazy valuations. He’d rather stay private another year or two and come out when he’s ready.

5 IPOs to Avoid

Chime is bloated with VC cash and could struggle to justify its pre-IPO valuation. Online banking is great. Focusing on traditionally underserved populations is a little precarious if the economy hits a bump and credit quality erodes. And conventional banks already have mobile apps, so investors who want exposure to that theme can just buy the banks.

Starlink has three strikes against it right now. First, building a satellite network from scratch is expensive even if you own the launch company. Second, at the current rate of deployment, it’s literally going to take over a decade to fill every hole in the sky, which argues against a credible 2022 IPO. Finally, there’s a brand identity confusion with Subaru’s satellite networking operation that wouldn’t be a problem in itself, but it speaks to a lack of focus.

Lime suffers from the “second mover” challenge I mentioned earlier. Electric scooters are a great outside-the-box solution to congested urban transportation, don’t get me wrong. But when rival Bird Global (BRDS) already went public via SPAC and Wall Street failed to cheer, we learned that appetite for these stocks is limited. Adding another one to the screen won’t help.

Better.com has officially already made its SPAC deal but we’re unlikely to buy in. The deal looked more than a little rushed given market conditions and the CEO’s sudden decision to fire 900 employees via Zoom conference and then take a leave of absence. If you can’t project confidence and poise on the ramp to your market debut, when are you going to do it? Anything that gives me flashbacks to the initial WeWork launch (backed by many of the same people) will really need to work to overcome that initial impression.

Reddit is known as the land of the meme stocks right now. I don’t see the rationale in adding another unless the market really demanded it. As yet another ad-supported online media play, there just isn’t a lot here to get hearts racing on Wall Street. To be more than a compelling site, Reddit needs a secret weapon, some kind of “killer app” beyond its fiercely loyal audience. Where is it?

2 “Sleeper” IPOs Wall Street Missed

With so many broken IPOs due to market conditions, even the strong debuts have retreated a lot from their highs. As I write this, the average stock that went public this year is trading 48% below its lifetime peak, which is an enormous opportunity if (like I do) you believe the declines are more about Wall Street’s mood than the potential these companies had all along.

We can buy the dip on name after name. These are at the top of my screen:

Roblox (RBLX)
The story of Roblox began in 1989 when David Baszucki and Erik Cassel, programmed a 2D simulated physics lab called Interactive Physics, which would later go on to influence the approach to building the groundwork for Roblox. Students across the world used Interactive Physics to see how two cars would crash, or how they could build destructible houses.

Today, an average of 36.2 million people from around the world come to Roblox every day to connect with friends. The platform is powered by user-generated content and draws inspiration from gaming, entertainment, social media and even toys. This is the real “metaverse.” And kids love it.

Rivian (RIVN)
Now that this company has gone public, I think the market has enough EV stocks on its plate. You can’t just buy these stocks because they’re cheaper alternatives to Tesla. You need a compelling reason that a particular company fills an essential hole in the market. More cars are not the answer. Radical approaches to transportation are a step in the right direction, but even there, I’m not seeing anything especially attractive right now.

And that’s what RIVN provides. Jeff Bezos has invested $700 million in this company, at least partially in his rivalry with Elon Musk. Ford has been eager to license its technology and will probably come around sooner or later. If you buy one “small” EV stock in the hopes of catching a sequel to Tesla’s lightning, this is the one.

Stay on Top of the Red-Hot IPO Market

There is nothing more exciting than being one of the first investors to own a hot growth stock that has the potential to double… and even triple your initial investment. 

These IPO companies make a huge splash when then come into the market touting their growth expectations and a pipeline of innovations that will keep their share price soaring.

But it’s important to point out that not every IPO stock will be a winner. In fact, the amount of research and analysis necessary to identify the promising companies is a lot more than most people bargain for and short cuts can result in huge losses if you’re not careful.

That’s where I come in… I absolutely love the hunt for a good IPO! Honestly, I geek out on the research and analysis involved in truly getting under the hood of these companies.

You’ll want to know about the company’s financials, the products in their pipeline, who’s promoting the company, how credible is the promoter, what are the risks facing the company and the list goes on.

Now let me be clear, I don’t buy every IPO right out of the gate.

Depending on the company, I might choose to get in at the initial offering or I might want to wait a quarter for the dust to settle before jumping in. Our research and analysis guide our entry points.

And today, I’d like to share access to my IPO research, insights and analysis with you through my IPO Edge service.

Here’s a quick look at some of the exciting stocks we’ve been in and out of over the years in IPO Edge: