© Reuters. 2 Recent IPOs to Buy on the Dip
IPOs are always an interesting asset class as there is considerable upside but it comes with more risk. Recently, IPOs have underperformed, but it could be an opportunity to add two high-quality ones – ZIM Integrated Shipping Services Ltd. (ZIM) and ZipRecruiter (ZIP).In many ways, 2021 has been a mirror image of 2020 especially in terms of the major trends impacting the stock market. A notable example is the performance of IPOs. From the March 2020 bottom, the Renaissance IPO ETF (IPO) finished 2020 with a 221% gain. In 2021, IPO has a YTD loss of 8%. To compare, the S&P 500 has a YTD gain of 14.6%.
Following the market bottom, tech and growth stocks were in vogue as these companies benefitted from the decline in longer-term rates, the Fed’s ultra-dovish policies and the increase in tech spending as people were spending more time online and working from home. Of course, the majority of IPOs can be classified as growth stocks, and technology accounted for the majority of new issues in 2020. The shutdowns and stimulus payments also led to many people taking an interest in trading stocks. Many ended up buying more speculative stocks including IPOs.
This year, the economy’s gradual reopening and strength in longer-term rates led to the unwind of these catalysts, so it’s not surprising that IPOs have underperformed. However, some are attractively priced and have considerable upside. Further, the recent drop in longer-term rates should also be supportive of IPOs in the coming months. Therefore, investors should consider buying the following IPOs on the dip: ZIM Integrated Shipping Services Ltd. (ZIM) and ZipRecruiter (ZIP).
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