There isn't a whole lot to appreciate about the past few weeks of vicious trading activity unless you are short the market or up to your chin in gold bullion.However, there is one silver lining: Many of the latest IPOs are now trading for less than their original prices.
The Downside of Getting in Early
Think about that for a moment. Underwriters sweet-talked some of the more marketable privately held companies into going public. The firms then pitched these offerings to their richest clients and most discerning institutional investors. All of the parties came to agreement on a price that was fair for every debutante, yet clearly with enough upside to make the deal worth it for the original IPO buyers.
Some of these stocks initially popped higher. Some did not. However, they're all trading for less than they would have been under ideal market conditions.
Sure, you can say the same thing about nearly every stock out there right now. However, in the case of six of the last 10 companies to go public that are now officially considered busted IPOs, we're talking about the opportunity to buy into these companies at even lower price points than the best buds of the lead underwriters.
Picking on the New Kids
Let's see how the last 10 IPOs have fared since going public in recent weeks.
Company | IPO Date | Offer | 8/19/11 | Gain |
Tudou (TUDO) | 8/17 | $29.00 | $19.24 | (34%) |
Carbonite(CARB) | 8/11 | $10.00 | $13.89 | 39% |
SandRidge Permian (PER) | 8/11 | $18.00 | $18.16 | 1% |
American Capital Mortgage(MTGE) | 8/4 | $20.00 | $18.86 | (6%) |
C&J Energy Services (CJES) | 7/29 | $29.00 | $22.99 | (21%) |
Horizon Pharmaceuticals(HZNP) | 7/28 | $9.00 | $7.98 | (11%) |
Teavana (TEA) | 7/28 | $17.00 | $21.90 | 29% |
Chef's Warehouse(CHEF) | 7/28 | $15.00 | $15.24 | 2% |
Wesco Aircraft(WAIR) | 7/28 | $15.00 | $11.71 | (22%) |
American Midstream(AMID) | 7/27 | $21.00 | $16.97 | (19%) |
The Winners
Carbonite and Teavana have been the big winners, up 39% and 29%, respectively.
It's easy to get excited about these companies. Carbonite is a provider of cloud-based data backup, combining two sexy niches -- cloud computing and data storage -- into one investable package. Teavana is a fast-growing retailer selling premium loose-leaf teas in upscale malls.
The other two stocks where IPO buyers are currently showing paper profits -- foodie haven Chef's Warehouse and oil and natural gas trust SandRidge Permian -- are only up a small amount.
Several months ago, Teavana, Carbonite, and perhaps even Chef's Warehouse would have doubled out of the gate. While investorscannotget in for less than the first wave of IPO buyers, they can at least nibble on these names for considerably less than what some of the first buyers on the open market were willing to pay.
Teavana, Carbonite, and Chef's Warehouse fetched as much as $29.35, $21.00, and $18.50, respectively, in just the past month.
The Losers
Here's where things get good.
Remember those fat-cat IPO buyers who got in on what seemed like golden ground floor opportunities? Allow me to show you the way to the basement.
The other two stocks where IPO buyers are currently showing paper profits -- foodie haven Chef's Warehouse and oil and natural gas trust SandRidge Permian -- are only up a small amount.
Several months ago, Teavana, Carbonite, and perhaps even Chef's Warehouse would have doubled out of the gate. While investorscannotget in for less than the first wave of IPO buyers, they can at least nibble on these names for considerably less than what some of the first buyers on the open market were willing to pay.
Teavana, Carbonite, and Chef's Warehouse fetched as much as $29.35, $21.00, and $18.50, respectively, in just the past month.
The Losers
Here's where things get good.
Remember those fat-cat IPO buyers who got in on what seemed like golden ground floor opportunities? Allow me to show you the way to the basement.
- Tudou -- the popular Chinese video-sharing website -- went public last Wednesday, and by Friday's close had already shed 34% of its value.
- Hydraulic fracturing and coiled tubing services provider C&J Energy Services, aerospace hardware distributor Aircraft, and natural gas limited partnership American Midstream aren't off by as much as Tudou, but all three are trading at around 20% discounts to their recent IPOs.
- Upstart Horizon, a fledgling biotech company, was a lottery ticket -- perhaps a huge payoff or a total bust for investors. But at least now it's a discounted gamble.
- American Capital Mortgage is a newly formed REIT aiming for a leveraged portfolio of mortgage-related investments. It probably hasn't even been able to put its IPO proceeds to work, and investors are already marking it down.
Picking Daisies in a Minefield
Obviously there are no guarantees in the market. Some of these busted IPOs will never appreciate to the point of making their initial public investors whole.
However, these aren't necessarily all junk stocks. You need either solid financials or a great story to pull off a Wall Street debut these days, and these just happen to be the companies that managed to get through what is now a challenging vetting process.
It's not the opportunity of your lifetime, but it will be the opportunity oftheirlifetime. Tread carefully, but by all means, do tread.
Obviously there are no guarantees in the market. Some of these busted IPOs will never appreciate to the point of making their initial public investors whole.
However, these aren't necessarily all junk stocks. You need either solid financials or a great story to pull off a Wall Street debut these days, and these just happen to be the companies that managed to get through what is now a challenging vetting process.
It's not the opportunity of your lifetime, but it will be the opportunity oftheirlifetime. Tread carefully, but by all means, do tread.
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