Playing Aesop with IPOs

 | Mar 15, 2012 | 1:18 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

gm

,

crm

,

cmi

,

wprt

,

DWRE

,

ALSN

Slow and steady will win the aftermarket race. I am talking about two deals that came today, two very different IPOs. One mad you a lot of money if you got in and one that could make you a lot of money if you didn't

This morning Demandware (DWRE), cloud play on Internet commerce, and Allison Transmission Holding (ALSN) came public. I had told you to do your best to get into Demandware because the space is hot and this could be the next Salesforce.com (CRM) of Internet commerce. The price talk was $12 to $14 and I said that it seemed reasonable, even though it is losing money, to pay up to $16 because then it would be at 5x to 7x sales, which is as the high end of the range of similar IPOs in the space.

Today it was priced at $16 and opened at $25, more than 10x sales, an absurd level, immediately the most expensive stock in the sector.

Allison Transmissions, a company that is cash-flow positive on the other hand, came public at $23, opened around there and then fell a dime below it. Here's a company, spun out of General Motors (GM) and purchased by a private equity firm that has a tremendous franchise in automatic truck transmissions, a growing area in a growing cohort. Don't forget we like Cummins (CMI), a truck titan that hit a 52-week high today and we know that the truck cycle is very robust. When I interviewed Lawrence Dewey, the truck industry veteran CEO for Allison, he said that despite the tremendous revival in the truck business, the turn's only in the fifth inning, not of a pre-season game but of the real deal.

We know also from our work on the natural gas trucking industry and the fill-up station businesses of Westport Innovations (WPRT) and Clean Energy Fuels (CLNE) that tons of trucks are being bought to comply with new emissions rules. We also know that Allison offers an automatic truck transmission that is taking share away from Wabco (WBC), which in itself is a very good company.

Now, Demandware is one of those companies that I hope you were lucky to get in at $16, but I think has now reached a level where I cannot possibly tell you to hold on to it. I think that the register must be rung and the stock cannot and should not be bought in the aftermarket.

Allison, on the other hand, represents genuine value and the fact that it didn't go to a premium allows me to tell you that this is a terrific play right here on the resurgent truck business.

We're invoking that stock sage Aesop here, the tortoise that is Allison now has it all over the fast-starting hare. Sure, if you include the first-day performance, the rabbit wins. But going forward, I'm taking the turtle. I like the long-term stock prospects of Allison much more at this point than Demandware.

_______

Editor's Links

More from Jim Cramer:

Columnist Conversations

I have been monitoring the price action of Amazon (AMZN) within the symmetrical triangle formation on its week...
Added to Manpower (MAN)& Kelly Services (KELYA) today. Bought starter positions in Mack-Cali Realty (CLI) ...
What is fascinating about today is that adjusted for the move in the SPX the VIX is actually down on the day. ...
The financial measure visualizations in this post are provided by Capital Market Laboratories (free trial) TK...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.