Markman Capital Insight

Cool tech IPOs finally emerge after drought

It has become a cliché. If your business is not scarfing up new technology, it’s being devoured by it. Given the choice, companies are choosing to eat.

With more than $3.6 trillion in deals announced, Reuters reports 2016 was the third largest on record for mergers and acquisitions. This sets up logical winners. And for once, they are not just investment bankers. With wallets opened wide, the time to invest in small, disruptive companies has never been better.

“There’s no doubt that many non-tech companies have tried to build and have made the determination that it’s enormously challenging,” Anthony Armstrong, a technology mergers expert at Morgan Stanley, told The New York Times . “It’s better to acquire disruptive technology than to be disrupted by that technology.”

In the past, the easiest way to invest in those technologies was IPOs. However, tracking resource IPO Candy notes that 2016 was one of the slowest on record for new deals. Just 113 companies made it to market.

And this year AppDynamics, a company that makes application monitoring software, was gobbled up for a huge premium by Cisco Systems (CSCO) just one day before its scheduled IPO. The networking giant paid $3.7 billion, versus the latest $1.9 billion valuation!

Our Internet Shockwave buy list mostly avoided smaller issues in 2016. Given their performance, that was prescient. Now I’m looking to selectively add smaller capitalization exposure.

IPO Candy identified two healthcare immuno-oncology recent new issues thatpiqued my interest. Both AnaptysBio (ANAB) and Jounce Therapeutics (JNCE) develop immunotherapies that use the unique characteristics of the human immune system to attack and kill cancer tumors.

Some immunotherapies have had near-miraculous results. President Jimmy Carter credited the biologic therapy with the complete cure of a very aggressive melanoma he battled in 2015.

Other stocks to watch are firms that managed to reach market last year and have retreated after initial rallies. Nutanix (NTNX) is a San Jose maker of infrastructure software that brings pay-as-you-go and rapid-to-market economics to enterprise clouds of all sizes in a single, convergent experience. Twilio (TWLO) makes web service APIs for software developers to build packages to make and send phone, text and video messages over the Internet. (We use Twilio for our mass text messaging.) Acacia Communications (ACIA) makes optical equipment that allows companies to boost bandwidth over existing fiber infrastructure. And Impinj (PI) makes the ultra RFID equipment that allow businesses to track physical items over a network in real-time.

All of these companies are nimble and have disruptive technologies. They will either exert that advantage over slow-footed, larger companies to grow market share, or become a light snack. Either way, they make compelling investments.

I’m watching for now. I will have specific new recommendations at a later date.

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About Jon Markman:  A pioneer in the development of stock-rating systems and screening software, Jon Markman is co-inventor on two Microsoft patents and author of the bestselling books The New Day Trader Advantage, Swing Trading and Online Investing, as well as the annotated edition of Reminiscences of a Stock Operator.  He was portfolio manager and senior investment strategist at a multi-strategy hedge fund from 2002 to 2005; managing editor and columnist at CNBC on MSN Money from 1997 to 2002; and an editor, investments columnist and investigative reporter at the Los Angeles Times from 1984 to 1997.

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