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The One Way to Cash In on Elon Musk’s Next IPO

0 | By Michael A. Robinson

As millions of Floridians made their preparations in advance of Hurricane Irma, it was business as usual at SpaceX.

At 10:20 a.m. Thursday morning, at Cape Canaveral, the company launched the U.S. military’s secretive X-37B space plane aboard one of its Falcon 9 rockets.

It was SpaceX’s first shot at launching an X-37B – after winning the contract earlier this year – and its 13th successful mission in 2017.

With such a stunning success rate, it’s no surprise that many of you keep asking me about when you’ll be able to invest in SpaceX.

Well, I’ll tell you right now, Elon Musk isn’t going to file any IPO papers until at least next year.

But you can still profit from the excitement around the SpaceX IPO now, months before the company goes public.

Today, I’llshow you one of the best ways to make money from the frenzy around new IPOs.

And you don’t have to wait on Musk – you can make this investment right now…

Mission to Mars

Musk is making you wait because – first – he wants to focus on getting people to Mars.

Since getting started in 2002, SpaceX’s long-term goal has been to colonize Mars. Musk wants to use the Crew Dragon, one of the only models right now able to transport people, to get there.

Musk – who’s also CEO at Tesla Inc. (Nasdaq: TSLA) – said at a 2015 shareholder conference that he won’t take SpaceX public until “flights to Mars begin.”

According to the time line Musk presented to the International Astronautical Congress last year, a Crew Dragon with U.S. astronauts aboard could launch in May 2018.

Now that’s a very optimistic timeline. The original November 2017 Mars launch window was pushed to March 2018, before being pushed again to May 2018.

So that means SpaceX could file for an IPO eight months from now at the earliest.

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But you don’t have to wait that long to profit from the excitement SpaceX is creating. You can start profiting today.

I like this investment because it exposes you to both new IPOs and companies that have been public for years. This balance hedges against the volatility typical of new IPOs. During a stock’s first three months of trading, its share price can be volatile, because investors are still determining how to value it after the initial buying frenzy.

For example, LinkedIn Corp. (NYSE: LNKD) fell 16.1% to $79.03 from its IPO date on May 19, 2011, to Aug. 19, 2011. But LinkedIn’s stock recovered 148% to the share price of $195.96 on Dec. 7, 2016 – its last day of trading after Microsoft Corp. (NYSE: MSFT) officially acquired it.

My pick here tracks IPOs during their first 1,000 trading days. While this exposes you to some volatility, it hardly affects the investment’s overall performance. Almost every one of its IPO holdings makes up less than 1% of the investment’s total holdings.

So, you’ll be benefiting from well-established stocks – and exciting, new stocks just hitting the market.

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SpaceX stock is generating so much attention in the IPO sector because of the company’s huge valuation. And the hype around its valuation could send my pick even higher as the SpaceX IPO nears.

SpaceX’s recent $21.2 billion valuation makes it the fourth-highest-valued privately held tech startup in the world, according to the Silicon Valley analysts I’ve consulted with. Only Uber Technologies Inc., Airbnb Inc., and Palantir Technologies Inc. are worth more.

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According to those analysts, SpaceX received $350 million in funding from undisclosed investors during its most recent Series H venture capital round – the firm’s first series round since January 2015. This pushed the SpaceX valuation from $12 billion up to a whopping $21.2 billion.

However, we don’t know how much investors will value SpaceX stock at until after the IPO. After all, one of SpaceX’s most important initiatives – the reusable rocket program – could affect how investors perceive the company leading up to its IPO.

The Road to Profits

After launching and landing a rocket with a reused booster (engine) for the first time ever on March 30, Musk has been committed to doing this in perpetuity. That’s because being able to develop reusable boosters will reduce the cost of space travel “by as much as a factor of a hundred,” Musk says.

This will dramatically impact the value of SpaceX stock, because it will also impact the firm’s profitability. Recent data from The Wall Street Journal shows SpaceX lost $250 million in 2015. Though the company hasn’t revealed the total production cost of its signature Falcon 9 rocket, the booster itself reportedly makes up 70% of that total cost.

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In other words, saving money by reusing boosters will save SpaceX money. This will bring the firm closer to profitability – a key factor we use to evaluate a stock’s value.

But you don’t need to wait for SpaceX stock to start trading to profit from IPOs. That’s the best part of my pick today – it will let you make money both now and when the SpaceX IPO happens.

The Way In

The safest and most profitable way to maximize gains and minimize risk both before and after SpaceX goes public is through the First Trust U.S. Equity Opportunities ETF (NYSE Arca: FPX).

FPX is an exchange-traded fund (ETF) that holds both newly public and well-established companies. These include hyped 2017 IPOs like Snap Inc. (NYSE: SNAP) and household names like Kraft Heinz Co. (Nasdaq: KHC).

Holding old and new stocks allows FPX to level out the volatility associated with IPOs. For instance, if FPX just held Facebook Inc. (Nasdaq: FB) when it debuted on May 18, 2012, the fund would’ve declined 44% in Facebook’s first three months.

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But Facebook became more established during its first 1,000 days on the market. By the time Facebook was taken off FPX in December 2014, after 1,000 days, the stock was up 111% to $80 from its IPO price of $38.

FPX is also great for investors looking to outperform the broader market. Shares of the fund are up 15% to $62.28 this year. That handily beats the S&P 500’s 10.1% rise year to date.

With a healthy mix of new and stable holdings, FPX is the best way to profit from IPOs.

Plus, you’ll get access to the SpaceX IPO, without the risk and volatility of buying in on day one.

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