June could be a really interesting month for investors looking for shares to buy. The big news is that SpaceX is set to launch on the stock market.
I don’t see myself joining the ranks of the retail investors looking to get in on the action. But I’m alert to potential opportunities elsewhere.
Here comes SpaceX
SpaceX shares are expected to trade on the stock market on 12 June, and it’s looking to achieve a valuation of $1.85trn. For context, that would put it somewhere between Tesla ($1.6trn) and Broadcom ($2trn).
Importantly, it’s also being fast-tracked into the S&P 500. This means that funds that look to track the index are going to have to buy the stock. And they’ll have to sell other things to make way.
By itself, that isn’t unusual – companies come and go from the index all the time. But they don’t usually account for 3% of the entire index. That kind of new entrant means an unusual level of buying and selling. And it’s the selling that I think might create interesting opportunities.
Where are the opportunities?
At times like this, it’s worth thinking about what might be attractive if share prices fall across the board. And one name on my radar is Netflix (NASDAQ:NFLX).
It’s been an interesting few months for the stock. The share price jumped 26.6% when the firm announced its takeover of Warner Bros Discovery was off.
I can understand why. It looked to me as though Netflix was preparing to pay a lot for assets that other firms have struggled to unlock value from.
As it happens, Paramount Skydance is going to buy the business instead. And I can’t help but see this as a win-win for Netflix.
Not only is the firm not going to do what I thought was a questionable deal, one of its rivals is going to instead. I think that strengthens the company’s position.
Unique strengths
Disney probably has the best content library in the industry. But Netflix has a better streaming product and I think that’s much more important.
For Disney, catching up to Netflix’s subscriber base is going to take big investments. That will cut into earnings and cash flows in the short term.
Will the company’s shareholders tolerate this? I’m not sure they will – it’ll make paying dividends hard to justify for some time.
By contrast, the big challenge for Netflix is that it has to keep investing in content. And the firm has been open about the risks involved.
New franchises and programmes are always uncertain. But I think the company’s investors are well used to taking the long-term view.
One to watch
When SpaceX joins the S&P 500, I expect a lot of stocks to become cheaper without the underlying business changing. So I’ll be looking for opportunities.
Netflix shares jumped in March when the firm announced its takeover deal was off. But the stock has since given back about half of that gain.
As a result, I think it’s in a position where any further drop in the share price could put it in very interesting territory for me. And that could happen in June.
Stephen Wright owns shares in Disney and Netflix
