Make Money in Growing IPOs the Easy Way

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Exchange-traded funds or ETFs offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some newly public companies to your portfolio, the First Trust U.S. IPO Index ETF (NYSE: FPX  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The First Trust ETF's expense ratio -- its annual fee -- is 0.60 %. The fund is very small, though, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed well, beating  the S&P 500 over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why IPOs?
Why invest in IPOs? Well, I typically advise people against it, since on average, newly public stocks tend to underperform.

More than a handful of newly public companies  had strong performances over the past year. NXP Semiconductors NV (Nasdaq: NXPI  ) , for example, surged 32%. It's in the business of near-field communications (NFC) chips. Some of its chips help facilitate mobile payment systems, such as on Google's (Nasdaq: GOOG  ) Google Wallet service, while others aid digital video surveillance . Sales of mobile phones outfitted with NFC technology are expected to triple  this year, to 100 million. NXP does have competition, though.

Energy transportation and storage company Kinder Morgan (NYSE: KMI  ) , yielding 4.3%, advanced 18% over the past year. Its fans like its regulated operations and stable fee revenue. It's the second-largest oil producer in Texas, has the largest natural-gas network in America, and controls 75,000 miles of pipeline and some 180 terminals. It's also shareholder-friendly.

Other companies still don't even have a full year's track record to assess. Facebook (Nasdaq: FB  ) , for example, debuted back in May and after falling quite a bit  is now roughly near its debut price. The company has massive potential because of its billion-some users. As it figures out how to make more money off them, its stock could do well. Some concerns remain, of course, such as an inevitable slowing of its growth and the possibility of many insiders selling shares. Meanwhile, the company is growing abroad, and had some 10 million users in Japan earlier this year.

Phillips 66 (NYSE: PSX  ) , the spun-off downstream business of ConocoPhillips (NYSE: COP  ) , is up about 60% since its April debut. It's the nation's largest independent oil refiner. Its stock is less of a bargain now, though, and its bears worry about competition and tight profit margins. Meanwhile, the oil prices have fallen recently, sending the stock down a bit. The company recently hiked its dividend  by 25%, so that it now yields about 2.3%, and it's doubling its share-repurchasing plans-

The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2147609, ~/Articles/ArticleHandler.aspx, 10/20/2016 8:54:11 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,162.35 -40.27 -0.22%
S&P 500 2,141.34 -2.95 -0.14%
NASD 5,241.83 -4.58 -0.09%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/20/2016 4:00 PM
COP $41.49 Down -0.23 -0.55%
ConocoPhillips CAPS Rating: ****
FB $130.00 Down -0.11 -0.08%
Facebook CAPS Rating: ***
FPX $53.41 Down -0.02 -0.04%
FIRST TR IPOX 100… CAPS Rating: No stars
GOOGL $821.63 Down -5.46 -0.66%
Alphabet (A shares… CAPS Rating: *****
KMI $21.19 Up +0.48 +2.32%
Kinder Morgan CAPS Rating: *****
NXPI $104.49 Up +3.46 +3.42%
NXP Semiconductors… CAPS Rating: ****