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The Secret to Investing in IPOs Is Timing

By U.S. News & World Report

The close of the summer season has typically stoked the initial public offering market and, with it, a growing interest from investors.

More than 100 companies have debuted on the stock market this year, an increase of almost 35 percent compared to the number of firms “going public” in the U.S during the same time period last year. Additionally, the number of companies registering for IPOs in the U.S. has surged, promising an attractive flow of companies to hit the stock market over the next year.

[See: 7 Great Ways to Buy Energy Stocks.]

After a somewhat dismal IPO market in 2016, this uptick presents a unique opportunity for investors to capitalize on these newly-listed stocks. But when it comes to such investments, timing is everything.

Translating the success. The flourishing future of the IPO market is buoyed by the increasing number of private companies that have attained a level of success that can translate from the private to the public market. For example, companies such as fast-growing streaming television producer Roku (Nasdaq: ROKU) recently debuted on the stock market, and online digital music provider Spotify is expected to go public in the next few months.

Other businesses, like database startup MongoDB and BP pipeline (North America), a spinoff of U.S. energy assets of the global energy behemoth BP ( BP), are also in the IPO pipeline. And, given strong stock markets and a potential first mover advantage, we also expect IPOs from unicorns — those startups valued at over $1 billion — to increase, including on-demand ride sharing platform operators Uber Technologies and Lyft.

Opportunities abound, but there are risks. This bountiful pipeline of IPOs has created a unique trading opportunity for both investors looking to trade on a short-term basis, or buy and hold a newly listed issue for multiple years. As such, interest in investing in IPOs has been increasing among both retail and institutional investors over the past years.

According to IPOX Schuster, IPOs surged by an average of 14.01 percent on their first trading day (based on the difference between the final offering price and the closing price, according to data going back to 2002), with only less than 20 percent of deals closing the first day in negative territory.

[See: Hot Off the Grill: 8 Stocks for Tailgating.]

As evident over the last several months, some highly-publicized IPOs debuted with less-than-stellar results. Identifying the most promising investments within the IPO market, thus, can prove somewhat challenging, given the difficulty of valuing an IPO and respective uncertainty about the actual risk of a deal at the date of debut. During the first few months of trading in aggregate, these stocks are typically dominated by institutional constraints and a lack of fundamental information.

While such companies have performed well on average, the median IPO has lagged, however, with more than 57 percent of deals trading significantly below first close price after four years. Examples of such performance include Frank’s International NV ( FI), Groupon ( GRPN) and (at almost four years) Twitter ( TWTR).

Moreover, IPO performance has also been sensitive to firm characteristics such as deal size or sector, as well as well as at what stage the respective company trades in the post-IPO window.

Look to the secondary market. Accessing IPOs on the primary market is difficult and may not be possible for individual investors. However, the secondary market still presents a meaningful opportunity for investors to access the potential excess returns that come with investing in IPOs. For example, the IPOX 100 U.S. index, a proxy for the secondary market performance of the largest 100 IPOs and spinoffs in the U.S., has more than doubled the performance of the Standard & Poor’s 500 index since its inception in August 2004.

[See: 9 Things to Know About Robo Advisors.]

Additionally, a company trading in the post-IPO window, defined as the first few years of trading in the market, has also been more likely to be involved in corporate mergers and acquisitions when compared to another incumbent firm. This has the opportunity to boost the stock performance, even substantially.

Some examples of significantly performing U.S. stocks this year include biotech Kite Pharma ( KITE), which had its IPO in 2014, life science equipment maker VWR ( VWR), which also debuted in 2014, and Ohio-based sandwich maker AdvancePierre Foods Holdings, which had an IPO in 2016 and then was bought by Tyson Foods ( TSN).

These impressive results underline why investing in IPOs, even on the secondary market, can be a winning strategy.

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The Secret to Investing in IPOs Is Timing originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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