In many ways, 2021 has been a mirror image of 2020 especially in terms of the major trends impacting the stock market. A notable example is the performance of IPOs. From the March 2020 bottom, the Renaissance IPO ETF (IPO) finished 2020 with a 221% gain. In 2021, IPO has a YTD loss of 8%. To compare, the S&P 500 has a YTD gain of 14.6%.
Following the market bottom, tech and growth stocks were in vogue as these companies benefitted from the decline in longer-term rates, the Fed’s ultra-dovish policies and the increase in tech spending as people were spending more time online and working from home. Of course, the majority of IPOs can be classified as growth stocks, and technology accounted for the majority of new issues in 2020. The shutdowns and stimulus payments also led to many people taking an interest in trading stocks. Many ended up buying more speculative stocks including IPOs.
This year, the economy’s gradual reopening and strength in longer-term rates led to the unwind of these catalysts, so it’s not surprising that IPOs have underperformed. However, some are attractively priced and have considerable upside. Further, the recent drop in longer-term rates should also be supportive of IPOs in the coming months. Therefore, investors should consider buying the following IPOs on the dip: ZIM Integrated Shipping Services Ltd. (ZIM) and ZipRecruiter (ZIP).
ZIM Integrated Shipping Services Ltd. (ZIM)
ZIM is an Israel-based provider of container shipping and additional shipping services. It is focused primarily on cargo. The company’s cargo services include breakbulk, out of gauge, project, reefer, dangerous and dry cargo. It is one of the top 20 carriers in the world.
ZIM’s inclusion is also a reflection that in 2021, IPOs are coming from all sorts of industries, while they were concentrated in tech last year. Further, the shipping industry has been a major topic of conservation as ports around the world are backed up. This has led to shipping rates hitting 13-year highs for many categories.
While the prospects for the shipping sector remain positive, ZIM also stands out among its peers with its forward price to earnings ratio of 6.1. This makes it one of the cheaper stocks in the sector. The company also has one of the lower debt loads and $10 in cash per share.
Recently, the stock has declined by 25% on global growth concerns which could prove to be a tantalizing entry point. Wall Street analysts are also bullish on the stock as it has a consensus price target of $53.4 which implies a 40% upside from current levels.
ZIM has an overall B grade in the POWR Ratings. The stock has a B for Quality components and Sentiment. This isn’t surprising given its low debt, high cash levels, and optimism among the analyst community. Investors who would like to learn more about how ZIM fares in the other POWR Ratings components can do so by clicking here.
ZipRecruiter (ZIP)
ZIP is an online employment marketplace. The company provides recruiting, job postings, online interviews, candidate screening, application updates, and job alerts services. It also differentiates itself from other job websites with its AI tools to match employers with the most qualified candidates.
ZIP went public in late May through a direct listing. The company is obviously benefitting from the recovery in the labor market. Despite a recent spike in coronavirus cases due to the Delta variant, it’s not expected to negatively affect the labor market. Further, many companies have complained about tightness in the labor market and difficulty recruiting qualified candidates.
This creates an opportunity for ZIP if its technology can match qualified candidates and companies looking to hire. Already, online job postings are above pre-coronavirus levels. This quarter, ZIP is expecting revenue between $157 million and $163 million which would be a 25 to 30% increase from 2020’s Q2 figures. For the full year, ZIP expects revenue between $580 million and $600 million which equates to growth between 39% and 44%.
ZIP is rated a B by the POWR Ratings which equates to a Buy. This isn’t surprising given its growth potential and tailwind from a tight and recovering labor market. In terms of its component grades, ZIP has an A for Sentiment and Quality. This is consistent with Wall Street analysts’ having a $29.50 price target, implying a 25% upside. Further, 5 out of 6 analysts covering the stock have a Buy rating.
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ZIM shares fell $37.51 (-100.00%) in premarket trading Wednesday. Year-to-date, ZIM has gained 228.70%, versus a 16.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles.
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