Bigger, Better Than Twitter's IPO

When you think of red-hot IPOs, what companies come to mind?

If you're as old as I am, you may remember the Microsoft (MSFT) initial public offering back in 1986. I was a Merrill Lynch broker in Washington State at the time.

My phones rang off the hook with investors wanting to get in on the Microsoft IPO. I wanted to help everyone who called, but I had to take care of my top high-net-worth clients first.

I thought I had a good shot at helping them. Merrill Lynch was one of the co-underwriters and my office was in Microsoft's backyard.

The big day came, and the firm allocated me ... 40 shares. Yup, 40 lousy shares.

I sold 10 shares apiece to four of my top clients. As you might guess, none of them were impressed — especially when they saw Microsoft stock go to the moon.

Microsoft went public on March 13, 1986, at $21 a share. Since then, the shares have split nine times. Six were 2-for-1 splits and three were 3-for-1 splits.

Each original Microsoft share equals 288 shares today. Anyone who still holds them has a split-adjusted cost basis of 9.7 cents per share.

That's right ... less than a dime!

Those 10 shares that my clients bought for $210 are now 2,880 shares worth around $95,000. Not bad, eh?

What's the Next Hot IPO?

We've seen plenty of other red-hot IPOs since: Qualcomm (QCOM), Google (GOOG), (AMZN) and eBay (EBAY). Now the Wall Street crowd is trying to whip up excitement for the impending Twitter (TWTR) IPO.

I expect Twitter's offering will go well — but I think an even bigger tech IPO is coming next year ... and it won't be American.

The IPO for Chinese e-commerce giant Alibaba Group Holding could dwarf Twitter — in both size and profitability.

Alibaba controls a whopping 80% of the Chinese e-commerce market. No U.S. e-commerce company so dominates its market. Analysts think Alibaba could be valued as high as $120 billion.

Alibaba's revenue is easily several times that of Twitter. According to Yahoo! (which owns 24% of Alibaba), quarterly year-over-year revenue soared 71% to $1.38 billion in the quarter ended in March 31.

For the full year, Alibaba expects to generate more than $5 billion in sales.

What about Twitter? The company can't say yet, but research firm eMarketer estimates Twitter will pull in $583 million in 2013.

If you want to hit an IPO home run, Alibaba is the company you want ... and maybe you'll get more than the 10 measly Microsoft shares my top clients bought back in 1986!

China Tech: Here & Now

If you don't want to wait for Alibaba, you can buy into the booming Chinese Internet industry right now. Take your pick of the 13 Internet-focused Chinese companies trading on the New York Stock Exchange and Nasdaq.

All these stocks are available right here in the U.S., to anyone with a brokerage account. (BIDU) is known as the "Google of China," which is accurate with one twist ... Baidu has the full power and protection of the Chinese government behind it. (BIDU is currently trading at $160.)

Vipshop Holdings Ltd. (VIPS) is a successful online discount-apparel retailer offering Chinese consumers top brands at 50% to 70% off original prices. (VIPS is currently trading at $67.)

NetEase (NTES), (CYOU), and Shanda Games (GAME) are online gaming companies (currently trading at $72, $41 and $4, respectively). If you think video games are popular with American kids, you'd be amazed at the passion and intensity that young Chinese males have for the multiplayer, online role-playing games these three companies produce.

SouFun (SFUN) is an Internet real estate portal. You can think of it as the Chinese Zillow â€" and a way to get in on the red-hot Chinese real estate market. (SFUN is currently trading at $49.)

Sina Corp. (SINA) and Renren (RENN) are social media companies, similar to Facebook, trading at $90 and $4. A third company in this space, YY Inc (YY), adds voice communication in addition to text and video. (YY is currently trading at $50.)

Dangdang (DANG) is China's largest online bookseller and trades at $12. (CTRP) is comparable to Expedia and is the largest beneficiary of the rapidly growing Chinese travel industry. (CTRP is currently trading at $58.)

NQ Mobile (NQ) provides mobile Internet services to consumers and corporate users inside and outside China. It's currently at $21.

LightInTheBox (LITB) sells discounted China-sourced clothing, electronics, home goods and sports gear. (LITB is currently trading at $12.)

I'm not suggesting that you rush out and buy any of the above companies tomorrow morning. As always, timing is everything so I recommend that you wait for my buy signal. And if you want to turbo-charge your potential returns with options on explosive stocks like these, join me at Blue-Chip Option Alert with a risk-free trial membership.

My main point is simple. Technology investors should open their eyes to the opportunities in China. I believe they are bigger and better than what's available in the U.S.

Best wishes,

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Posted 10-11-2013 1:52 PM by Tony Sagami
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