Bide Your Time on IPOs

 | Mar 29, 2012 | 3:00 PM EDT  | Comments
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EPAM

With optimism about market conditions having grown as major indices rallied from October lows, it's not terribly surprising that the pace of IPO pricings has increased dramatically.

Several of this week's new issues are getting strong buyer support. As usual, companies that are from the consumer discretionary sector or hail from a hot sub-sector of technology tend to grab plenty of headlines as they begin trading.

Along those lines, the successful public-market debuts of Annie's (BNNY), Vocera Communications (VCRA), CafePress (PRSS) and Millennial Media (MM) have been in the spotlight.

After getting a boost of 89% in its first day of trading, Annie's is perhaps better known to a wider swath of people than just a few days ago. The company's natural and organic packaged foods have been on shelves not only in obvious places such as Whole Foods (WFM), however, but also in mass merchandisers such as Wal-Mart (WMT) and Target (TGT).

The company has seen revenue growth acceleration in recent quarters, which is a good sign for any company but especially one ramping up through equity financing.

Despite good fundamental indicators, it's very typical for new IPOs to correct at some point in the weeks or months following the start of trade. That means with Annie's or Facebook or any new stock, it's prudent for individual investors to wait while the stock pulls back and potentially offers a technical buy point.

Vocera Communications, while providing a mobile communications platform for hospitals, falls under the umbrella of health care technology. That's a sub-sector that's seen stock price leaders such as HealthStream (HS) and Athenahealth (ATHN).

Vocera was trading at around $21.70 on Tuesday, its second day on the public markets. That was a 36% gain over its IPO price of $16 but below its opening-day high of $24.48.

CafePress, which lets individuals, non-profits and small businesses sell their own branded swag such as T-shirts, mugs, stickers and baseball caps, began trade on Thursday. The company raised $86 million, selling 4.5 million shares at $19 apiece. That was higher than its proposed range of $16 to $18.

As of midday Thursday, it was trading at around $20.52. This is another example of a company with good revenue growth heading into its IPO, having shown triple- or double-digit sales increases in the past five quarters.

Other relatively new online specialty retailers, such as Liquidity Services (LQDT) and Stamps.com (STMP), have boasted solid sales growth.

Liquidity Services went public in 2006, so I track that in my scans of recent IPOs, because it's less than a decade old. Many stocks that went public in the past 10 or 12 years are among the market's best price leaders. The stock has been pulling back after reaching an all-time high on Monday. Of course, that pullback coincides with the broader market retreat.

Another Internet-related IPO that debuted on Thursday was Millennial Media. The Baltimore-based company develops mobile apps for advertisers, and not surprisingly, anything having to do with mobile apps these days is likely to generate some interest.

The company priced 10.2 million shares at $13 each, the high end of its proposed range. That was a markup from the originally planned range of $9 to $11.

Shares were trading at $24.66 midday Thursday, a gain of 89% over the IPO price.

The company has some heavy hitters in its client roster, including Chrysler, Activision Blizzard (ATVI), News Corporation (NWS) and General Motors (GM).

While those are some of the more high-profile names from closely watched sectors, it can also be rewarding to track lesser-known companies making their public debuts.

Also launching on Thursday was Rexford (RXN), which makes gear for water-management uses and raised $426 million through the sale of 23.7 million shares priced at $18. That was the low end of its planned range.

Nonetheless, the stock saw a 16% boost by mid-session Thursday, trading at $20.90. Obviously, investors can't draw conclusions about ongoing demand for shares based on one day of trading, but I like to watch the unnoticed IPOs because they can sneak under the radar of the larger financial press, and become solid winners.

A recent example of that is IT services company Epam (EPAM), which debuted in February amid relatively little fanfare. After the typical post-IPO pullback, shares began rallying on March 1 in heavy volume, reaching a high of $21.75 on Tuesday.

The stock is now consolidating, and it's too early to say where a new buy point may present itself, but it offers a case of a little-known, small IPO that rewarded traders who were aware of its potential.

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