People are nervously wondering whether they should take interest in the Dunkin’ Brands Group IPO — especially now that the IPO has been raised to $400 million. Here’s the bottom line: the pros will be, so you should too.
How many investment funds do you know that must hold shares of Starbucks (NASDAQ:SBUX) for no other reason than simply to “mirror” popular aspects of the US economy? Answer: a ton.
Now, how many of those same funds will need to own shares of Dunkin’ for the exact same reason? Answer: almost all of them.
That brings us to today’s lesson in savvy investing. If you want to surf a rising tide, buy stocks which fulfill a very important aspect of our CHEAT SHEET® investing framework:
Support is Provided By Institutional Investors & Company Insiders
Let’s face it: no matter how many of our richest friends we convince to buy some stock we like, it only takes one huge fund to push the stock in the same or different direction. So, if we don’t think about getting in ahead of the pros (or at least early on during their accumulation phase), we’ll be speaking into a megaphone to nowhere when it comes to firing up meaningful demand for our stocks.
Today’s case study is Mastercard (NYSE:MA). Before Mastercard went public all the talking heads debated the finer points of whether or not the stock would be a winner. After all that hot air contributed to global warming, Mastercard’s performance came down to one extremely simple economic law: supply and demand.
Turns out Mastercard needed to be in tons of investment portfolios merely to “mirror” an important slice of economic transactions … and the same will be true for Dunkin’ Brands.
The chart above shows Mastercard’s (NYSE:MA) journey from IPO to today’s price. Although the media was full of skeptics and the bankers clearly priced this one horribly wrong, I bought the stock on the simple thesis that fund managers would be forced to buy shares in one of the world’s largest credit card companies.
Of course, I can’t promise Dunkin’ Brands’ ibankers will misprice as poorly and create an insane ROI potential. But I can imagine a scenario where it takes investment funds many months to accumulate their target position in Dunkin Brands. And that should be enough reason to make Dunkin’ a home run.