Hearty IPOs, Indeed

 | Jul 06, 2012 | 8:00 AM EDT
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Though it's been widely reported that institutional investors became soured about the prospects for initial public offerings following the botched Facebook (FB) deal, it's also true that weak market conditions have put a damper on new companies coming public in recent months.

It's not uncommon to see new IPOs put on hold when the overall market environment is not particularly favorable. Most of the time, the companies are relatively unknown to the retail investing public, so a postponement of the deal doesn't get much traction in the press, nor even in the blogosphere.

Of course, in Facebook's case, the size and scope of the deal -- along with the general fascination with Internet-content IPOs and the company's enormous user base -- meant that a delay in that particular deal would have been unfeasible. Since Facebook's May 18 debut, four companies have gone public on U.S. exchanges: EQT Midstream Partners (EQM), Tesaro (TSRO), Exa (EXA), and ServiceNow (NOW).

I've consistently written here that it's not a good to jump into an IPO on its debut. Typically, a new stock will zip higher and then pull into a consolidation. Once it begins to climb out from that pullback, it may offer a technical entry point. Thus far, Facebook is behaving in typical fashion: After a temporary opening-day pop, it pulled back, and now appears to be attempting an uptrend.  

The four other new IPOs are too new to be showing clear chart patterns that would allow new investors to take a position. Among these, EQT Midstream Partners, Exa, and ServiceNow could potentially be earnings-growth leaders, based upon their revenue and income performances in recent quarters.

But, when I expand my view to companies that have gone public in the past three or four years, several stocks meet my fundamental and technical screening criteria.

For instance, Vitamin Shoppe (VSI), which went public at $17 in October 2009, has notched double- and triple-digit earnings increases during each quarter of the past two years. Revenue grew at double-digit rates during that time.

Analysts see income rising 17% this year, to $1.95 a share, and for 2013 estimates are 18% higher than that: $2.31. The stock was rallying to new highs Thursday morning, trading above $56, even as major indices showed losses.  This is a stock that has been buyable near new highs, although a moderate pullback at this juncture would not be surprising, and it could offer an entry point.

The company is expected to report its second quarter sometime around July 26.

Another new IPO has been racing to new highs, barely pausing for a breath. Mortgage originator Ellie Mae (ELLI) went public at $6 in April 2011. The stock rallied to an all-time high of $19.39 Thursday. The company is expected to report its second quarter sometime around August 2. Analysts expect it to earn $0.12 per share on revenue of $19.84 million. Those would mark significant year-over-year gains.

Ellie Mae is getting a boost along with homebuilders, such as Lennar (LEN), D.R. Horton (DHI) and Standard Pacific (SPF). Optimism about the sector is clearly driving price gains in these stocks. While they may be out of reach at this point, a profit-taking pullback could offer a buy opportunity -- as long as sentiment about a housing recovery remains in place.

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