Amid the recent volatility in broader markets, a stock debut on Sept. 22 has been making headlines: restaurant software group Toast (NYSE:TOST). It started trading on the Big Board at an opening price of $65.26. Yesterday, the shares closed at $59.00 and the market capitalization stands around $29.46 billion.
Companies rely on several methods to go public in the US. Many still use the initial public offerings (IPO) route. The IPO calendar on the Investing.com website shows just how busy 2021 has been on this front.
The past year has also seen a large number of reverse-mergers between private groups and special purpose acquisition companies (SPACs)—a topic we previously covered. The SPAC route has been the choice of 60% of the companies that listed on US exchanges so far in 2021.
Each year, a number of US-based companies also go public via a direct listing. Recent examples include Coinbase Global (NASDAQ:COIN), Palantir Technologies (NYSE:PLTR) and Spotify (NYSE:SPOT). Also in 2019, Slack completed a direct listing. The company was later acquired by Salesforce (NYSE:CRM).
Finally, we have to mention spin-offs, which is when “a publicly traded company divests a subsidiary or a segment through the distribution of shares on a pro-rata basis to its existing shareholders."
“The implication for shareholders is that they become holders in two companies, the spinoff and the parent company.”
In recent months, Merck (NYSE:MRK) completed the spin-off for Organon (NYSE:OGN). Similarly, Bath Body Works (NYSE:BBWI)—formerly known as L Brands—filed to spin off Victoria's Secret (NYSE:VSCO).
Therefore, today we introduce two exchange-traded funds (ETFs) that could appeal to a range of readers interested in investing in new companies on Wall Street.
1. Invesco S&P Spin-Off ETF
Current Price: $64.23
52-Week Range: $41.48 - $67.97
Dividend Yield: 0.86%
Expense Ratio: 0.62% per year
The Invesco S&P Spin-Off ETF (NYSE:CSD) invests in US-based companies that have been spun off from a parent company within the past four years. The fund, which started trading in December 2006, tracks the S&P US Spin-Off Index.
CSD has 27 holdings. Its top 10 names make up close to 60% of net assets of $73.9 million. In terms of sectors, industrials have the largest slice, with 31.78%. Next in line are consumer discretionary (20.80%) and materials (14.75%) shares.
The heating, ventilating, air conditioning (HVAC) systems group Carrier Global (NYSE:CARR) and elevator and escalator supplier Otis (NYSE:OTIS), which were spun off from United Technologies (NYSE:RTX)—now renamed Raytheon Technologies (NYSE:RTN)—have the leading two spots. Then, we see two spin-offs from the chemical giant DowDupont, namely Dow Inc (NYSE:DOW) and Corteva (NYSE:CTVA).
The fund is up by 15.5% this year and 53% in the past 52 weeks. CSD hit a record high in late August. Forward P/E and P/B ratios are 17.57x and 2.48. Potential investors could consider buying the dips in the ETF.
2. First Trust US Equity Opportunities ETF
Current Price: $130.30
52-Week Range: $90.86 - $137.06
Dividend Yield: 0.18%
Expense Ratio: 0.57% per year
The First Trust US Equity Opportunities ETF (NYSE:FPX) invests in large and liquid IPOs in the US. These new companies become eligible to enter FPX as of the sixth days of trading and can stay in it for up to four years. Quantitative initial screening is used to determine which names will be in the fund.
FPX, which has 100 holdings, started trading in April 2006. The leading 10 names account for almost 40% of net assets of $2.06 billion.
In terms of the sub-sectoral breakdown, the information technology sector makes up the highest portion, with 40.95%; followed by health care (12.92%) and communication technologies (10.41%).
Chip-maker Marvell Technology (NASDAQ:MRVL); social media group Snap (NYSE:SNAP), known for its Snapchat app; gig economy platform Uber Technologies (NYSE:UBER), known for its ride-hailing business; Tradeweb Markets (NASDAQ:TW), which provides electronic trading services to institutional customers; and video communications platform Zoom Video Communications (NASDAQ:ZM) lead the names in the roster.
Over the past year, FPX is up about 40%, and returned close to 10% in 2021. It hit a record high in mid-February. But since then, the names in the ETF have come under pressure. P/B and P/S ratios stand at 6.04x and 3.56. Buy-and-hold investors could regard a potential decline toward $125 as a better entry point.