David Ryan: Turnaround Signals For Buying IPO Stocks Bouncing Off Lows | IBD Live

TL;DR

IPOs that come out in a bear market or late in a bull market can be promising, as shown by the success of Microsoft, Apple, and Shopify.

Transcript

[Applause] i looked up some um some ipos in the past and ones that came out maybe not at the best time in the market and had to reset or just spent some time and and if you could go to yes um microsoft uh in october of 1986. so let's go back and let's study some of the some of the stocks um there we go yes mr softy let me get my uh let me get my ch... Read More

Key Insights

• 🚄 IPOs that come out in bear markets or late in bull markets can be lucrative opportunities as they are often priced attractively and represent high-quality companies.
• 💁 Patiently waiting for IPOs to break downtrends, form bases, and demonstrate institutional buying is crucial for reducing risk and maximizing potential gains.
• 🔊 Volume is a key indicator in IPO analysis, with higher volume and consistent volume spikes during uptrends suggesting strong buyer interest.
• 🍉 Giving up the initial move and waiting for stocks to show strength before entering can result in reduced risk and participation in long-term growth opportunities.

Questions & Answers

Q: What are the key characteristics to look for in IPOs that can potentially perform well?

When analyzing IPOs, it is important to look for stocks that have broken a downtrend, spent time at the bottom, and show a significant increase in volume during uptrends. These characteristics indicate institutional buying and the potential for substantial gains.

Q: Why do IPOs that come out in a bear market or late in a bull market tend to perform well?

IPOs released during market downturns often have lower valuations and are priced more attractively. Investment bankers also become more selective, leading to higher-quality companies going public later in the market cycle.

Q: Is it necessary to buy an IPO at its absolute low point?

No, it is not necessary. It is often better to wait for a stock to show strength, breakout from a base, and demonstrate institutional buying. Giving up the initial move can result in reduced risk and the possibility of participating in the stock's long-term growth.

Q: What is the significance of volume in IPO analysis?

Volume is a crucial factor in IPO analysis. Higher volume during buying days indicates significant institutional and individual interest, while lighter volume during down days suggests the stock is holding up well. Consistent volume spikes and overall changes in volume characteristics indicate a potential turnaround.

Summary & Key Takeaways

• Microsoft, in 1986, experienced a downtrend but broke it after hitting bottom multiple times with little volume. The stock then exploded and achieved significant gains.

• Apple, in 1983, faced a bear market but broke its downtrend by generating heavy volume. It went on to experience rapid growth and a breakout.

• Shopify, in 2016, also faced a downtrend before breaking out and showing strong institutional buying. Patiently waiting and analyzing stock behavior are crucial for successful IPO investments.