The Investor Saga

Charles Payne
Posted: Mar 26, 2014 12:01 AM
The Investor Saga

Party over, oops out of time
So, tonight I'm gonna party like its 1999

In addition to the biotech bubble hemorrhaging air, many pundits are pointing to the abundance of IPOs as a sign that the end is near.

It is not just the volume of offerings, but much is being said about the quality of names going public, as 70% of recent offerings have yet to post profits. This is a yellow flag, but it is not 1999. Last year, in one of my commentaries I had written how the' Jobs Act' was a gift to Silicon Valley, pushed through by President Obama, for stepping up to the plate and making up for fewer contributions to Wall Street. Now, a lot of companies are jumping on the bandwagon.

One of the greatest Norse sagas (epic ancient stories) is that of King Ragnar; he was a fierce fighter and Viking ruler, known for his bravery that had no boundaries, which lead him to invade England with the wrong ships and against overwhelming numbers. He was captured and killed in a pit of snakes. His sons: Ivar the Boneless, Bjorn Ironside, Halfdan and Ubbe Ragnarsson, and Sigurd Snake-in-the-Eye, avenged his death and pillaged England, Wales, France, and Italy. To this day, such stories of King Ragnar and his sons are legend and Romanized in books and songs, but not in any electronic games.

The Investment Saga

The great stock market saga is currently in a volatile period, and cynics say like the great but stubborn king of Norse legend, investors are on the cusp of perishing in a pit of snakes. In this case, the snakes would be Wall Street and the Federal Reserve would be ready to strike a deathblow.

While I think this is a bit hyperbolic, there is no doubt the market has been spooked by the volatility of high-flying NASDAQ names. It is likely another saga will only add to the specter that this run is coming to an end. Tomorrow King Digital goes public, riding the hottest gaming saga in the west: Candy Crush. It's not a flimsy company founded on the back of a napkin a week ago, but it follows the disaster of 'Zynga' that once boasted hot, online games that seem a distant memory.

This company took in $1.9 billion last year, with $568 million hitting the bottom line!

The problem with King Digital is the business model and future hits. Currently, the company has five games...or sagas:

  • Candy Crush Saga: 93 million daily users
  • Pet Rescue Saga : 15 million daily users
  • Farm Heroes Saga: 8 million daily users
  • Papa Pear Saga: 5 million daily users
  • Bubble Witch Saga: 3 million daily users

It is clear that this company has a lot of eyeballs and generates big money, but where's the next Candy Crush?

I am not going to opine on whether people should chase the first day of trading. I am sure nimble players might be able to make money for me; but I prefer to see a couple of quarters of financial releases to get a better handle on the company and its underlying stock. I will say this; there are more dubious IPOs then Candy Crush on the drawing board.

But, hold off on playing that Prince classic. The froth seen back when his Royal Purple highness was still rocking the charts, has not materialized in the sense that people are scooping out IPOs, and sending them all to the moon. Last year, six IPOs doubled on the first day of trading and thus far, four have accomplished that feat this year, but it is a long way from the 202 that made such a splash from 1999 through 2000.

I like it more when overbought stocks come down swiftly and get to where they have to be. In 1999 and parts of 2000, it was rare for the hot names to yield much ground, or stay down long. This time around that's not the case, as many of last year's hottest names and sectors have already gone flat and gone begging looking for buyers. Despite some parallels, this is not 2000, but it does not mean that many stocks are not over-valued and that the wild ride will not continue.