Investors are getting excited about the launch of a brand new stock — Instacart!
The grocery delivery business is slated to start trading on Friday, in one of the few high-profile Initial Public Offerings (or IPOs) this year.
I’m excited about the deal — but maybe not for the reasons you would initially think.
The REAL Instacart Winners
Popular IPO transactions like Instacart can be extremely lucrative for certain investors. Back when I was a hedge fund manager, my firm often received material allocations of key IPOs like this.
We would pay the offering price to receive shares of the new stock. And then when the stock started trading in the open market, shares would often jump 20%, 50% or even double in the first day of trading.
This is great news for well-connected institutional investors.
But individual investors like you and I are unlikely to receive shares at the true IPO price. And by the time shares start trading in the open market, prices are often much higher and carry more risk of a pullback. So I won’t be buying shares of Instacart immediately after the stock goes public.
But there are still some important winners from this deal. And also from future deals that will likely be priced if the Instacart IPO is a success.
Private equity firms like The Blackstone Group (BX), Carlyle Group (CG) and KKR & Co. (KKR) often own shares of private companies like Instacart. And they benefit when the IPO market picks up.
A single successful IPO can help to unlock an entire market.
This is because if the Instacart deal goes off without a hitch, private equity companies will know that there is plenty of investor appetite for new stocks. We can then expect a wide assortment of new IPO deals to be priced before the end of the year.
Buying shares of BX, CG and KKR can give you a chance to profit as these private equity companies cash in on their investments.
Don’t Forget the Underwriters!
Another group of stocks that could benefit from a new surge of IPO deals is the investment bank stocks who underwrite these deals.
Investment banks like Goldman Sachs (GS), Morgan Stanley (MS) and JPMorgan Chase (JPM) charge lucrative fees for setting up new IPOs.
These companies typically help create the deal prospectuses which include all the pertinent and regulatory information required to sell new shares to investors. And the investment banks also host “road shows” where they introduce the new IPOs to their favorite investment clients who will likely buy shares in the IPO transaction.
I’ve been to many of these road shows in the past, and it’s always interesting to see how hard an investment bank pitches the new stock.
While many of these investment bank stocks have pulled back over the last few months, a revival in the IPO market could trigger a new rally. So be sure to watch the Instacart deal later this week.
A successful launch and rising stock price following the deal would be great news for these investment banks.
In short, you’re unlikely to make a killing trading Instacart this week.
But you DO have plenty of investment opportunities to profit from a newly rejuvenated IPO market.
Here’s to growing and protecting your wealth!
P.S.: If you’d like to see the most aggressive trades I’m placing with my own family’s wealth, make sure you sign up for my Speculative Trading Program. I send real-time email and optional text alerts every time I enter a new trade myself. So you can follow along with your own account — or simply pick and choose which plays make the most sense for you!