Stay away from new public stocks, warns a trader.
Market conditions are becoming less favorable for initial public offerings after a record-breaking 2020, Chantico Global founder and CEO Gina Sanchez told CNBC’s “Trading Nation” on Wednesday.
Almost half of 2021 IPOs are now trading below their offer prices, including recognizable names like Poshmark, Didi Global, Compass and Krispy Kreme.
“As 2021 approaches, we’re at the peak of performance and companies are going to have a lot of problems, quite frankly, big profits going forward,” said Sanchez, chief market strategist at Lido Advisors.
“It doesn’t mean that they are underperforming, it just means that the expectations are very high and therefore it is easy for them to underperform and that is the challenge of an IPO,” he said. she declared.
Sanchez added that even broader market conditions have not made the recent debut easier.
“S&P as a whole is acting very cautiously. It rewards sectors with very low volatility and penalizes sectors with high volatility, and IPOs are the most volatile things, ”he said. . “So it’s a high risk area that I think it really makes sense to stay away from at the moment. “
Bill Baruch, founder and chairman of Blue Line Capital, said in the same interview that more enthusiastic investors should always have a long-term view of the space.
“You have to be very careful in this area, especially given the overall market environment at these higher levels,” Baruch said.
Their top pick in the group was Roblox, the gaming platform that went public in March via a direct listing.
Baruch appreciated the stock for its work on the Metaverse, a 3D virtual world in which users can play, work, and collaborate, and its limited exposure to China, where regulators are cracking down on game companies. are. He added that only 17% of his daily users are from the Asia-Pacific region.
“Look in the right place to get some exposure,” Baruch said. “A good trendline is coming in this stock around $ 77, probably hitting $ 80 in the next few days.”
Roblox fell nearly 1% Thursday afternoon to around $ 81.34.
“I find it attractive again for the long haul, but there is room to be very careful,” said Baruch.
Disclosure: Blue Line Capital owns shares of Roblox.