In his Know Your IPO segment of "Mad Money" Wednesday, Jim Cramer told viewers a new initial public offering (IPO) cycle is upon us and investment bankers are putting their best foot forward with deals such as Royalty Pharma plc (RPRX) , which debuted this week at $28 a share and closed Wednesday at $48.61.
Cramer said the last wave of IPOs ended with the implosion of WeWork, but after a long hiatus caused by Covid-19 the IPO pipeline is beginning to fill once again.
Investors can think of Royalty Pharma as a hedge fund for biotech, as the company invests in individual drugs to help fund their clinical trials, then receives a royalty stream once the drugs are in production. The company has a proven track record and currently sells for just 16x trailing earnings, which is only in the middle of the range for biotech stocks.
Cramer said he'd be a buyer, even at current levels, and would buy more into any weakness.
We don't have much price history to work with, but we can be creative.
In this daily Japanese candlestick chart of RPRX, below, we can see the first two days of trading. Notice the large high/low ranges but also that prices have closed above the opening, telling us that traders are bullish. The large upper shadows tell us that traders are also willing to take short-term profits.
In this second Japanese candlestick chart of RPRX, below, we used five-minute candlesticks to see the intraday movement. I do not recommend using intraday candles as the technique behind candlesticks does not make sense on an intraday basis. The real bodies on candles represent the daily battle between the open and the close and that logic does not apply between 9:30 and 9:35 a.m.. Traders do not have to close their positions at 9:35, but day traders need to do that by 4:00 p.m.. Still, the chart shows that buyers appeared in the $48-$47 area. Strength above $50 and $52 is likely to produce further gains.
Bottom line strategy: RPRX is off to a strong start. Traders who are comfortable with trading new issues and are comfortable with the risks could be buyers.