Facebook’s IPO is set for this Thursday (tomorrow) and a lot of people are crazy with anticipation. This morning on her news, Jamie cited a Forbes Magazine article that predicts Facebook’s bloom is off the rose and henceforth it’s headed down. I believe there’s some truth to that however, there’s still money to be made. Facebook co-founder Eduardo Saverin evidently expects to make a truckload off his 4% stake. He chose to renounce his U.S. citizenship three weeks ago to avoid the inevitable tax bill: http://www.bloomberg.com/news/2012-05-12/facebook-co-founder-may-gain-choosing-singapore-over-u-s-.html.
Incidentally, by the close of trading on Friday, Bono will become the richest rocker in the world, courtesy of Mark Zuckerberg and company. The U2 frontman owns 2.3 percent of Facebook shares, through his investment group, Elevation Partners. The investment will be worth an estimated $1.5 billion by 4 PM ET on Friday – not bad for a $90 million investment back in 2009.
Just this morning Facebook increased their offering by 25% and now stand to vacuum in $18 Billion when shares hit the Nasdaq tomorrow. However, according to the Toronto Star, http://www.thestar.com/business/article/1178757–facebook-ipo-wanna-buy-a-share-why-canadian-investors-will-mostly-be-out-of-luck?bn=1, unless you hold a large account with one of the company’s major underwriters — investment bank behemoths Morgan Stanley, JP Morgan, Goldman Sachs, RBC Capital Markets and BMO Capital Markets among them — or inside connections at the social media giant, the chance of buying Facebook shares at the initial price offering is slim. Those bad boys are going skyward as the front of the line clamours to get in. See the above Toronto Star article for how to buy one share as a souvinir, complete with a framed certificate.
I subscribe to Wealth Daily, an investment newsletter that rocks. Here’s how technical stock specialist Christian DeHaemer explains why you can sit back, relax, still get in and make money:
Don’t Buy It… Yet
That said, you won’t be able to buy it at the expected offer price of $34 to $38 a share. If this IPO follows similar ones, it will be a tough buy for the first six months… It will launch, sell-off, launch again, and finally after six months — when the insider shares are unlocked — the stock will likely sell off to a buy price.
The SEC (Securities & Exchange Commission) makes insiders hold for six months before dumping shares.
Here is a typical IPO chart pattern:
I used to run a service that played these specific moves. They repeat — and you can make money from this cycle:
- Initial hype, low number of shares in the float send stock up.
- The sponsoring broker takes his money out. It’s all profit to him.
- Run-up into earnings; true believers buying back.
- Insiders unlock. They can and do sell shares… Float increases, stock hits low.
- Whatever news was held back from the first post-IPO earnings is pushed out in the second quarterly earnings. Stock launches.
My colleague Ian Cooper just made 174% in five days trading this very scenario.
Buy Stocks that Will Benefit
Another way to profit is to buy proxy stocks… in other words, stocks that facilitate what Facebook does, do something similar, or are a buyout candidate. I wrote a report on those here. Have a great day,
Christian DeHaemer @TheDailyHammer on Twitter
That last point made by Mr. DeHaemer also got me thinking: with an $18 Billion carrot dangling in front of them, I wonder what Zuckerberg and friends’ plans are for all that cash…..