If you’re looking for the best IPOs of 2020, you’ll want to get more familiar with special purpose acquisition companies, or SPACs as they’re more commonly known.
But before I get into my top 10 list, I thought I’d cover a little IPO history.
Recently, I saw some interesting statistics on Stock Analysis.com. It said that there had been 4,586 initial public offerings (IPOs) between 2000 and 2020. Over the past 21 years, only 2000 saw more IPOs take place than in 2020, 397 to this year’s 378 (so far).
In the previous five years before 2020, the average year had 209 IPOs, 44% less than in the year of the pandemic. How is that even possible?
Well, SPACs don’t require nearly as much marketing or pre-IPO roadshows, so they’re a natural fit for these dangerous times. Add to that the fact that many high-growth companies are opting to go the SPAC route rather than a traditional IPO — 161 unicorns went public in 2019 compared to 96 through the end of October 2020 — and you’ve got the recipe for a hectic year.
Here I’ve selected one IPO for each of the first 10 months of 2020. All of them, I believe, will be excellent 3 to 5 year holds. Here are my top 10 IPOs for 2020:
- Reynolds Consumer Products (NASDAQ:REYN)
- PPD (NASDAQ:PPD)
- Flying Eagle Acquisition Corp. (NYSE:FEAC)
- Social Capital Hedosophia Holdings II (NYSE:IPOB) and Social Capital Hedosophia Holdings III (NYSE:IPOC)
- Jaws Acquisition Corp. (NYSE:JWS)
- Azek (NYSE:AZEK)
- Pershing Square Tontine Holdings (NYSE:PSTH)
- Xpeng (NYSE:XPEV)
- Laird Superfood (NYSEAMERICAN:LSF)
- Array Technologies (NASDAQ:ARRY)
The problem with choosing the best IPOs is that many of them are SPACs. That means they’re a shell with nothing but cash and a desire to combine with an operating business within 18-24 months. These 7 IPO tips will help those who need a little more background on SPAC investing.
Top 10 IPOs of 2020: Reynolds Consumer Products (REYN)
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Reynolds Consumer Products went public on Jan. 30, 2020, selling 47.2 million shares at $26 a piece, raising $1.22 billion in gross proceeds. It gained 9.8% on its first day of trading and is up 17% through November 12.
I didn’t initially like this IPO. In fact, back in February, I wrote about seven reasons investors should ignore Reynolds stock hype. And while I’m still a little leery of the maker of aluminum foil and garbage bags, its third-quarter results suggest that income investors can feel confident holding it for the long haul.
Through the first nine months of 2020, Reynolds had revenue of $2.38 billion, 8.1% higher than a year earlier. Operating profits were $420 million in the third quarter, 19.3% higher year-over-year.
For all of 2020, it expects sales of at least $3.24 billion and an adjusted net income of at least $410 million. Free cash flow positive, your dividend payment ought to safe for years to come. Just don’t expect to hit a home run with this one.
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PPD went public on Feb. 2, 2020, selling 60 million shares at $27, raising $1.62 billion in gross proceeds. It gained 11.1% on its first day of trading and is up 27% through November 12.
In July, I recommended the company’s stock, suggesting that patient investors would be rewarded by this provider of drug development services to the biopharmaceutical industry.
PPD reported its Q3 2020 results on October 27 and the results were excellent.
On the top-line, revenue rose 20.5% to $1.23 billion. On the bottom-line, it had operating income of $142.5 million, 20.5% higher than a year earlier. Its backlog finished the quarter at $7.89 billion, 15.9% higher than in the same period a year earlier. The company is currently converting about 12% of its backlog to actual revenue each quarter.
“We have continued to focus on executing for our customers as we navigate through the pandemic. This is evident in our continued momentum with double-digit growth in net authorizations, revenue and adjusted EBITDA over last year,” the company’s Q3 2020 press release stated.
I expect PPD to continue to deliver for shareholders for years to come.
Flying Eagle Acquisition Corp. (FEAC)
Flying Eagle Acquisition Corp. is a SPAC from Jeff Sagansky and Harry Sloan, the same minds behind DraftKings (NASDAQ:DKNG), a stock I believe will do very well over the long haul.
Flying Eagle went public on March 5, 2020, selling 60 million shares at $10, raising $600 million in gross proceeds. It gained 4.0% on its first day of trading and is up 20.1% through November 12.
In September, Flying Eagle announced that it was merging with Skillz, a mobile gaming and payments company that is having an excellent year from a business perspective. It expects its revenues to grow to $555 million by 2022 from $225 million today.
Valued at $3.5 billion post-combination, as my InvestorPlace colleague, Joel Baglole, said recently, the Flying Eagle-Skillz combination “is one of the more exciting upcoming SPAC IPOs.”
Social Capital Hedosophia Holdings II (IPOB), Social Capital Hedosophia Holdings III (IPOC)
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April was a busy few weeks for investor Chamath Palihapitiya. Not only did his investment firm, Social Capital, sponsor one SPAC, Social Capital Hedosophia Holdings II — he did a second SPAC, Social Capital Hedosophia Holdings III, raising a total of $1.08 billion in a single month.
Palihapitiya went on to do three more SPACs in 2020.
IPOB went public on April 27, 2020, selling 36 million shares at $10, raising $360 million in gross proceeds. It gained 1.2% on its first day of trading and is up 80.3% through November 12.
It gained so much due to a September agreement to merge with Opendoor, a tech company that buys homes directly from the seller, fixes them up, and resells them for a profit. The combination has an enterprise value of $4.8 billion.
IPOC went public on April 21, 2020, selling 72 million shares at $10, raising $720 million in gross proceeds. It gained 0.7% on its first day of trading; it’s down 0.5% through November 12. It is still looking for a target.
Jaws Acquisition Corp. (JWS)
Jaws Acquisition is a SPAC that went public on May 13, 2020, selling 60 million shares at $10, raising $600 million in gross proceeds. It gained 2.5% on its first day of trading and is up 7.5% through November 12.
What makes Jaws special is that Starwood Capital founder Barry Sternlicht backs it. The billionaire founded Starwood 29 years ago with a primary focus on real estate, often the distressed kind. Starwood Capital’s got eight companies to the IPO finish line, including Starwood Hotels & Resorts, which merged with Marriott International (NYSE:MAR) in September 2016.
Jaws announced Nov. 12 that it was merging with Cano Health LLC, a Florida-based senior care provider. Inc. recently named Cano, the 6th-fastest growing healthcare company in the U.S., part of its Inc. 5000 list.
The combined entity is worth $4.4 billion, or 3.1 times its estimated 2021 revenues of $1.45 billion.
It appears that Sternlicht has hit another home run.
Azek is a manufacturer of outdoor living products such as decks and railings utilizing engineered materials rather than wood.
It went public on June 11, 2020, selling 33.3 million shares at $23, raising $765 million in gross proceeds. It gained 18.0% on its first day of trading and is up 54.2% through November 12.
I hadn’t heard about Azek until I saw Jesse Singh, its chief executive officer, on television at the end of October discussing his firm’s sponsorship of the Boca Raton stop on the Champions Tour, the PGA Tour’s competition for golfers over the age of 50.
Curious as I am, I checked out its website, realized it was a public company, and, more importantly, focused on sustainability. However, I’m not going to consider investing in a newly-public company without at least checking out its financials.
Over the last two fiscal years, its sales have grown by 26% to $794 million, while it’s gone from an operating loss in 2017 of $26 million to an operating profit of $59 million in 2019. In the first nine months of 2020, sales are up 10% over last year, with a 3% increase in operating profits.
It’s not massive growth, but we have been in a pandemic most of the year, so I think you can cut it some slack.
Long-term, I like the focus away from wood to more sustainable materials. We need as many trees sucking in oxygen as we can find.
Pershing Square Tontine Holdings (PSTHU)
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The SPAC that rocked the world.
Bill Ackman jumped into the SPAC game in July when he created Pershing Square Tontine Holdings, intending to bag a tech unicorn.
Airbnb said no to the hedge fund billionaire. And that’s okay. If you get a hit in three out of every 10 at-bats, Major League Baseball tends to put you in their Hall of Fame.
PSTH is a SPAC that went public on July 21, 2020, selling 200 million shares at $10, raising $4.0 billion in gross proceeds. It gained 6.5% on its first day of trading and is up 10.5% through November 12.
The interesting thing about this SPAC is that Ackman is putting up real capital as its sponsor. He’s committed at least $1 billion from Pershing Square and possibly as much as $3 billion, making it one of only five IPOs that have raised $5 billion or more in the past decade.
People said Bill Ackman had lost his touch. His $2.6 billion profit earlier this year buying credit default swaps to protect against a market downturn says everything about the man’s ability to make money for both his clients and himself.
If for nothing else, I’m interested to see what Ackman ultimately targets. I think investors might be surprised.
Source: Johnnie Rik / Shutterstock.com
Xpeng went public on Aug. 2, 2020, selling 99.7 million shares at $15 to raise $1.50 billion in gross proceeds. It gained 41.5% on its first day of trading and is up 124% through November 12.
It’s only appropriate in the year of the SPAC and electric vehicles that I would choose the Chinese electric vehicle maker as one of the best IPOs of 2020. And while a 425% annualized return is one reason to name it a Best IPO, I’m putting it on the list because I see it doing big things in the next 3 to 5 years.
In September, I selected Xpeng as one of 10 new stocks worth owning. Although it’s losing money, it’s got a solid balance sheet, and business is booming.
On November 2, Xpeng announced its October delivery results. The company delivered 3,040 vehicles in the month, 229% higher than a year earlier, and 12.6% lower than in September, a company record. It has delivered 17,117 vehicles on a year-to-date basis, 64% higher than in the same period a year earlier.
Of the 3,040 vehicles delivered in October, 69% were its P7 sports sedan, with its compact G3 SUV accounting for the rest. Xpeng only launched the P7 in May. It’s already delivered 10,000, just 160 days after the vehicle’s launch.
With a third vehicle expected in 2021, the coming year ought to be good for both Chinese consumers and shareholders alike.
Laird Superfood (LSF)
Source: David Tonelson / Shutterstock.com
Don’t believe the plant-based food & beverage movement is the real deal? McDonald’s (NYSE:MCD) recently announced that it is launching a “McPlant” line of vegetarian meal options in 2021. The items include a plant-based patty and chicken substitute, all developed in partnership with Beyond Meat (NASDAQ:BYND). I’m a fan of both companies, so this is a big deal for both groups of shareholders and the meatless movement more broadly.
Yes, the movement is real. And one company benefiting from the plant-based movement is Laird Superfood. Founded in 2015, it is taking its Laird Superfood plant-based coffee creamers to the world. And winning lots of business in the offing.
Laird went public on Sep. 22, 2020, selling 2.7 million shares at $22, raising $58 million in gross proceeds. It gained 85.5% on its first day of trading and is up 92% through November 12.
Not a huge IPO, but the potential here is real.
In the first six months of 2020, Laird’s revenues were $11.1 million, 106% higher than a year earlier. Yes, it lost $6 million in those six months, but it’s got a committed management team along with a significant investment from Danone’s (OTCMKTS:DANOY) venture capital arm, Manifesto Ventures.
Array Technologies (ARRY)
The last name of our top 10 IPOs, Array Technologies went public on October 14, 2020. ARRY sold 47.5 million shares at $22, raising $1.05 billion in gross proceeds. It gained 65.7% on its first day of trading and is up 78% through November 12.
As you might be aware, solar power and other renewable energy sources are very popular at the moment and bound to become even more so once President-elect Joe Biden takes office in January.
Array makes the ground-mounting systems that allow solar panels to track the sun throughout the day, generating 25% more energy at a cost that is 22% lower than traditional fixed-tilt mounts that don’t move. I’ll let its prospectus explain why this is important:
“Our trackers use a patented design that allows one motor to drive multiple rows of solar panels through articulated driveline joints. To avoid infringing on our U.S. patent (expires 2030), our competitors must use designs that we believe are inherently less efficient and reliable.”
The best part about Array’s IPO: the company actually makes money. In the first six months of 2020, it had operating profits of $102.6 million on $552.6 million in sales, both significantly higher than a year earlier.
If you believe in solar, ARRY is a long-term buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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