I was having a conversation with a colleague last weekend about investments in social networking.
He was quite adamant about his negative feelings about Facebook (NASDAQ: FB). “I would never touch that stock,” he told me emphatically.
Mind you, this statement could have potentially sparked a wild debate with a man like me. If you’ve been following my articles recently, you’d know that I was pushing for readers to buy Facebook in June when it was trading around $25 a share.
Current market price puts the company at $40.62 a share, which makes for a 62% gain in just two months.
Now, I could have used this information as a rebuttal to my colleague’s statement. But I didn’t.
The fact is I understand the aversion that many investors have had — and will continue to have — to social media.
You see, my colleague believes that social media is in a bubble right now. And the truth is, there’s a very good chance he’s right.
In June, I was confident that Facebook was undervalued — so much so that I wrote an article titled, “Facebook is Undervalued.”
However, my stance on Facebook is no longer as bullish as it was then. There was far more upside at $25 a share.
“Be fearful when others are greedy, and greedy when others are fearful.” — Warren Buffett
Generally speaking, when there is a ton of hype surrounding a particular stock, it’s a strong indicator to take your money and run.
This is especially true when it comes to high-profile IPOs. In these situations, it’s often best to take a seat while the stampede rushes by.
However, there are rare opportunities to invest in IPOs without actually investing in the stock itself. These opportunities can allow you to invest in an IPO and take profits before a company even becomes public.
Sound bogus? I assure you it’s the truth…
Ahead of the Market
Firsthand Technology Value Fund is a business development company (BDC) currently trading on the NASDAQ.
As a BDC, Firsthand invests primarily in small, upcoming, and privately operated businesses, specifically in the technology sector.
Because Firsthand holds stake in upcoming private companies, it allows investors to get in on the action before these companies reach the public market.
For instance, the company held stake in Facebook prior to its IPO in 2012 and experienced a massive increase in valuation following the initial IPO filing…
Shares jumped from around $15 in January to $45 in April.
Investors who timed this play correctly saw gains over 300% in less than three months. That’s triple your money in about a 90-day period!
And if you notice the price of shares after the bubble popped, you’ll see that they are slightly higher than they were prior to Facebook’s IPO filing. So even if you fell into a coma, there was no way you were going to lose money on this play.
Now, you might be thinking that none of this matters, because Facebook already had its IPO. From the looks of it, this opportunity has come and gone.
However, Firsthand has a comparable stake in another social media company — one that is also poised to have a high-profile IPO…
And this IPO is already beginning to drive share prices to their next peak.
A Little Bird Told Me
Rumors have been circulating for some time now about Twitter’s plans for an IPO, most likely in 2014.
Of course, Twitter’s management has continuously denied the accuracy of these rumors…
But the company recently slipped, unintentionally letting out information that directly points to an IPO.
Twitter recently posted a job listing on LinkedIn for a financial reporting manager. Included in the listed duties of the position were “responsible for preparation of monthly reporting materials, quarterly/annual financial statements and Form S-1 when we are ready to go public.”
When USA Today caught wind of the job listing, it released its findings to the public. This prompted Twitter to quickly pull the posting, but the damage has already been done.
It would be very difficult for Twitter management to deny plans for an IPO at this point.
In case you’re wondering why Twitter is working so hard to keep its IPO under wraps, the answer is actually quite simple: Twitter is desperately trying to avoid the high-profile IPO that drove Facebook share value into the ground for its first year.
But we all know how fruitless those efforts will be. After all, Twitter is in the social media business, and these days, that’s about as “high profile” as it gets. To think for a second that the mainstream media isn’t going to jump all over this is delusional.
John Fitzgibbon, head of IPOScoop.com, has been quoted saying: “The S-1 could show up at any time.”
Firsthand has already begun to spike in response to the IPO rumors and is up 50% so far this year.
If Twitter’s IPO is as high profile as Facebook’s, we can expect very similar gains this time around. The sooner you get in on this one, the better.
Turning progress to profits,
Jason Stutman
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