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Managing Editor’s Note: Today, we’re hearing from our contributing editor Mike Burnick in his weekly feature.
Mike has over 30 years in the investment and financial services industry – from operating as a stockbroker, trader, and research analyst, to running a mutual fund as a registered investment advisor and portfolio manager, to being Research Director for the Sovereign Society, specializing in global ETF and options investing.
And he’s been senior analyst at TradeSmith for three years, running Constant Cash Flow, Infinite Income Loop, and Inside TradeSmith.
Here’s Mike…
Tracking the Supply/Demand Equation for SpaceX
BY MIKE BURNICK, CONTRIBUTING EDITOR, MARKET MINUTE
The SpaceX IPO launched last Friday with plenty of fanfare.
In fact, shares surged about 20% higher on IPO day from the offering price…
Over the weekend, investors left out of the IPO had a few days for FOMO (fear of missing out) to set in.
And for an encore, a second stage of buying ignited on Monday sending SpaceX shares up another 20%!
No shortage of demand for SpaceX, despite its ultra-rich valuation.
And there is more demand where that came from.
Five days post-IPO, demand for SpaceX shares from index funds will kick in.
Mutual funds and ETFs that track Dow Jones, Russell, MSCI, and Nasdaq indexes will add an estimated $14.2 billion worth of demand for SpaceX shares between now and the 4th of July.
But there is also more supply coming soon.
Insiders who bought into SpaceX as a private company (and there are a LOT of them) face a lock-up period before they can sell their cheap shares.
But soon after SpaceX reports second-quarter results in August, about 1 billion additional shares will be available for sale as the first lockup expires.
And if the stock is 30% above its IPO price on that date, which it already is now, up to 455 million additional shares become available.
Before year end, lockups will expire on several billion more shares.
SpaceX only issued 555 million shares at its IPO. So, the initial index-fund demand should have a positive impact on the stock price.
But once the lockups begin to expire for SpaceX insiders later this summer and fall, the supply of new shares could easily overwhelm current demand.
Bottom line: For my money, it may be best for traders to “rent” SpaceX shares near-term. Meanwhile, investors may want to curb their enthusiasm to “own” the stock long-term. At least until supply and demand get back into balance.
Good investing,
Mike Burnick
Contributing Editor, Market Minute