The reward is worth the hunt for "rare jewel" IPO stocks.
Rare jewel IPO stocks are when a new market debut sees its share price rise at least 100% from their day-one close within the first 90 days on the market. Kathy Donnelly, investing coach and co-author of "The Lifecycle Trade" says such a stock is "twice as likely to gain 500% or more in its lifetime," according to statistics she gathered studying IPO stocks.
"You asked me earlier, why study IPOs," Donnelly told Investor's Business Daily's "Investing with IBD" podcast. "Once we found this out, we're like, OK, well, rare jewels are definitely worth looking for," she said.
To find rare jewels, Donnelly says she starts by just collecting top stocks into a chart book, then organizing them by referring to buy or sell signals in a daily and weekly chart view.
The tricky part comes in determining whether to catch or release a stock after its debut. Here are two examples of IPO stock rare jewels to learn from.
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When To Take IPO Stock Profits
Donnelly says she looks for signals, the chart pattern, and considers the weekly view since a daily view can sometimes shake investors out of a stock early.
For CoreWeave stock after its IPO in March earlier this year, Donnelly began taking a profit on her position in CoreWeave after the stock hit a 50% closing price range on June 6.
"As a trader, I've never really created programs. I don't run things to tell me when it's time to do this or that," she said.
"I like to use my eyes and study the chart and have it jump out at me so that I can recognize it, have that experience, and know what I'm looking for."
When An IPO Stock Doesn't Really Come Back
Not every rare jewel stock trade works, however. PC video games specialist Corsair Gaming made its market debut in September 2020 at 17.25, hitting a record 51.37 in November that year. But since then, the stock has yet to reach or surpass that peak. Shares currently trade around 8.89.
Donnelly says early reversal bars seen in a weekly chart view can provide an early warning an IPO stock may not deliver. But a reliable reversal bar needs to come after a stock has made progress, in conjunction with buying and selling signals after set periods like 10 days, 21 days and 50 days.
"10% of stocks approximately will have their biggest run right after the IPO and then never amount to much of anything," Donnelly said. "But it was one that still achieved the criteria for a rare jewel and so it went into my model book."
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