Poppy's Picks & Updates
Hot off the poppy press is QuantumScape (QS), a battery technology company. From Yahoo Finance's Company Profile: "QuantumScape Corporation manufactures and supplies lithium batteries for electric vehicles. The company focuses on fundamental disruption in the energy storage sector. QuantumScape Corporation was incorporated in 2010 and is based in San Jose, California."
The company only started trading on NYSE last week. In QuantumScape's case, it went public to raise additional money for battery technology development. I gleaned their IPO motivation from two things: (1) QS has a focus on heavy, expensive, research and development (R&D) to make their next-generation battery technology. Companies with still-under-development tech generally bleed cash for a long time before making profits. (2) The company is not yet profitable, which is pretty common for companies that go public.
If you click the Yahoo Finance quote link above, you'll notice lots of data missing, which is common for recently-IPO'ed companies. There's not much attention paid to them yet. Here's a news article with a bit more information about QS, and here is their investor page on their website. The company is backed by Bill Gates and a former Tesla CTO, and expects to have their next-gen lithium batteries in cars by 2025. So investing in QS is definitely a looooong term play. Buying into a stock like QS is a pretty risky investment, but of course with more risk, there is more reward.
More about IPOs (Initial Public Offers), also known as "going public"
QuantumScape went public last week, meaning that anyone can buy shares in it now. So from its founding in 2010 until last week, only 'insiders,' or people who are directly associated with the company, had access to company stock. In general, companies go public for one of three reasons: to raise additional money because they need it, to look more attractive for an acquisition, or because the company must IPO because of SEC (security and exchange commission) laws that force them to. Facebook is a good example of a company that had to go public because it had 500+ investors - it didn't have a choice, by law. There's lots of temporary stock price manipulation with IPOs, which led me to remember the pseudo-acronym for them: "It's Probably Overpriced." Nonetheless, if you really believe in the company, then it's a good buy at almost any price. There are a few ways for a company to go public, technically speaking, but most follow the same steps:
- An investment bank like Goldman Sachs underwrites (with 10s or 100s of millions of dollars) the initial public offering. This means the bank will travel the country for the year prior to the IPO to drum up interest (called a "roadshow"), determine what share price to offer the stock at, and maybe most importantly, support the IPO stock price in the unlikely event that it drops on IPO day.
- On IPO day, the stock is open for regular people to buy and sell it for the first time. Generally, this means that the volume (shares traded) is super high. In the event that the stock price falls, perhaps because the price was set too high, the investment bank will step in, buying any for-sale shares, in order to support the IPO price to prevent it from dropping into negative territory. This is why you see so many stock IPOs jump up a lot when they go public -- the investment bank is creating a floor for the share price. It's all part of their plan for a big splash of positive press coverage.
- For company insiders who already owned the stock before the IPO, they probably can't sell anything on the day it goes public. To reduce volatility, every stock I've ever seen go public has a lock-up period, where insiders cannot sell any shares for anywhere from 90-180 days. It's common to see the stock drop a bit on the day the lock-up period expires because so many insiders were waiting until then to unload their shares. Hint: That day may be a good time to buy.
- Lindsay bought as much QuantumScape (QS) as she could on Poppy's recommendation. It's already up a good bit from where she bought it.
- (@Lindsay - it looks like there's some name issue with google sheets and QS because the stock is so new.. it's showing as "Kensington capital," although the stock price is correct. Hopefully, that will automatically fix itself)
- Bryan bought as much Chipotle Mexican Grill (CMG) as he could on Poppy's recommendation.
- Brenna and Milena are still sitting on their $1000 in cash.
Please remember to update the google sheet detail tab when you buy/sell something. I look at the revision history each month so I can include your trade in this newsletter. The summary tab is at the bottom of this email as a picture and the live link to it is here.