Hot IPO Stocks: Here’s A Less Risky Way To Play This Year’s Booming

Did you own hot IPO stocks such as Peloton (PTON), Zoom Video (ZM) and Pinterest (PINS), which racked up triple-digit gains last year?

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Investors who love new issues might like to know that IPOs are on track to break records this year, thanks in part to special purpose acquisition companies, or SPACs. In 2000, at the height of the dot-com boom, 406 companies came public and raised $93 billion.

That record is likely to be broken this year. Renaissance Capital expects there will be 875 IPOs this year, made up of 500 SPACs and 375 traditional new issues, for $250 billion in proceeds.

So how can investors play the hot IPO stocks boom?

Renaissance IPO ETF (IPO), run by Renaissance Capital, offers one way. The $498.2 million fund, which tracks the Renaissance IPO Index, marked its 15th year in June. The index comprises the biggest and most liquid, recently listed U.S. IPOs. New IPOs are added and older issues removed when the index gets rebalanced each quarter. Stock weightings are capped at 10%.

The fund lowers the risk vs. owning single stocks by holding a basket of new issues. Since IPOs have little trading and financial history, they can be riskier than more-seasoned stocks.

Technology accounted for the biggest sector weighting as of Sept. 30, at just over 50% of assets. Health care was next at about 22%, financials 9%, consumer discretionary 8% and communication services 7%. Smaller positions in consumer staples, industrials and real estate made up the rest.

Moderna Leads Hot IPO Stocks

Top 10 holdings at the end of September included Moderna (MRNA), Uber Technologies (UBER), Snowflake (SNOW), Zoom Video and CrowdStrike (CRWD). Palantir Technologies (PLTR), Datadog (DDOG) and Cloudflare (NET) were among other current or former IBD 50 stocks in the fund’s top 10.

The top 10 stocks added up to nearly 47% of the 106-stock portfolio.

Covid-19 vaccine maker Moderna formed a cup-with-handle base with a 464.95 buy point. But it triggered a sell signal during the week as it sank below its 50-day moving average. Even though Moderna stock is now about 22% off its August high, it’s still up more than 260% for the year. The Cambridge, Mass.-based biotech came public in December 2018.

Uber and Zoom, one of 2020’s biggest winners, are lagging this year. Uber had lost 11% year to date through Thursday’s close, while Zoom stock dropped 22%.

Snowflake held a 7% gain, CrowdStrike advanced 16%, and Palantir edged 2% higher. Current IBD 50 stock Datadog rallied more than 40%, while Cloudflare’s year to date gain is closer to 50%.

IPO Near A Buy Point?

Renaissance IPO is roughly flat as it’s spent much of this year shaping an eight-month cup with handle, according to MarketSmith chart analysis. But last year, the ETF rallied 107%. The IPO ETF is about 11% away from a 70.11 buy point. Note that shares fell below the 200-day moving average amid the recent market weakness. Renaissance IPO charges a 0.6% expense ratio.

It’s often less risky to buy an ETF…