ASK THE FOOL
Tread carefully with IPOs
Q: I see that Uber Technologies’ initial public offering didn’t go too well. I thought IPOs were good investments. They’re not?
A: Jason Zweig offered a great definition of IPOs in his book “The Devil’s Financial Dictionary” (PublicAffairs Books, $20): “ ‘Initial public offering,’ or the first sale of a company’s stock by private owners who know everything about it to public buyers who know nothing about it. Marketed to the outside investors as an opportunity to get in on the ground floor of a growing business, the typical IPO instead presents the greatest opportunity to the insiders who are selling, because the associated hype enables them to cash out at inflated prices. An IPO can thus more accurately be said to stand for ‘insiders’ private opportunity,’ ‘imaginary profits only’ or ‘it’s probably overpriced.’ ”
Uber’s stock debuted on the market priced at $45 per share but closed out the day below $42 before falling as low as $36.08 the next day. As of this writing, a few weeks later, the shares are around $40.
While some newly issued stocks do soar initially, they often fall back to Earth within a few months. It’s generally best to avoid IPOs, giving them a year or so to settle down while you review several quarters’ worth of financial statements.
Q: What are “day” and “GTC” stock orders?
A: If you place a “market” order with your brokerage, it will be filled immediately, or as soon as possible. You can alternatively place a “limit” order, aiming for a better price, and you can designate that order as good for the day, or good till canceled (”GTC”).
GTC orders remain in effect until they’re executed, they’re canceled or they expire.
MY DUMBEST INVESTMENT
From the back of a van
Dear Fool: My dumbest investment was buying speakers out of the back of a van. Can you believe anyone would do that? Well, I did. I got them appraised afterward, and they were worth around $10 to $15. I’d paid $150 for them. This was a good thing, though, as it will probably keep me from getting scammed in the future — because now I have been burned.
The Fool responds: You learned a great lesson, and it cost you less than $150, so that’s pretty good. Many people learn painful lessons about investing in stocks, real estate and other things — with those lessons costing many thousands of dollars.
One of your lessons in this story is that if a proposition looks a little shady, it may not turn out well. If you’re being pressured to buy some supposedly great stock by a strange broker who called you out of the blue, there’s a good chance it’s not so great.
Your story is also a reminder that things that seem too good to be true are often not true. Penny stocks, for example, may seem like bargains because they sell for less than about $5 per share, but they’re often more likely to fall in value than to rise.
And while some suggest that you can make a mint day-trading, know that most people who engage in it lose money — often a lot.
THE MOTLEY FOOL TAKE
Dividends and growth
Times are tough for smartphone component makers. Skyworks Solutions (Nasdaq: SWKS), which makes chips used in a variety of wireless communications technologies, suffers when mighty Apple can’t keep its iPhone shipping volumes high and rising. That’s why Skyworks has seen its share prices slide lower lately.
It’s not all bad, though, as Skyworks has a few tricks up its sleeve. For starters, it has started to boost the business it gets from other end markets, such as next-generation Wi-Fi routers and military-grade radio systems. Looking ahead, Skyworks is winning large supplier contracts as the market for 5G wireless infrastructure equipment takes shape.
On the company’s second-quarter earnings call, Skyworks CEO Liam Griffin highlighted “massive infrastructure wins” with back-end giants Nokia and Ericsson. And that’s just the beginning of a huge growth opportunity. “Skyworks’ unique systems expertise, strategic partnerships and global scale are critical to the success of 5G deployments,” Griffin said.
Skyworks shares have been trading at appealing levels recently, with a price-to-earnings (P/E) ratio near 12 — and a growing dividend that recently yielded 2.3%.
Considering Skyworks’ industry-leading chip portfolio and its hefty profit margin, the stock is worth a closer look. (The Motley Fool owns shares of and has recommended Skyworks Solutions.)