Assessing Two Recent IPOs

 | Jul 18, 2012 | 10:30 AM EDT
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Though the initial public offering (IPO) market has been in deadsville since the Facebook (FB) debut in May, five new companies are slated to go public this week.

The companies hail from various subsectors: medical, information technology, retail and leisure. I'm regularly scanning the new and recent IPO landscape because it is fertile ground for stocks poised for market leadership.

Other than being new, there's not necessarily a common thread among the young batch of leading stocks these days. With an essentially trendless market, I wanted to scan for some newly public companies that are showing some potential for rallying.

I have tracked Spirit Airlines (SAVE), which went public in May of last year, off and on for the past few months. But that's essentially meant "off," as Spirit lost altitude and fell below its 50-day average on May 17. On July 5, the stock regained that key price line, and has been in takeoff mode since then.

It has been trending along its five-day exponential moving average. In Tuesday's whipsaw session, the stock ended at $22.35, a loss of 1.4%. Volume was heavier than on Monday, but it still came in below average.

A weekly chart shows that the stock is attempting to etch the right side of its two-and-a-half-month base. For me, the lack of a defined market trend is the factor keeping me out at this time. But a more definitive market rally could make this stock a viable buy candidate. However, airline stocks can be notoriously volatile, and can notch price swings pegged to energy prices, macroeconomic developments, business spending, or other metrics. Unless the market is in an uptrend and the stock makes a persuasive technical argument to buy it, I will hold off.

The company is expected to report its second-quarter earnings results sometime around July 26. Information contained in that report could send the stock spiking sharply in one direction or the other.

Another fairly recent IPO that caught my attention is Rentech Nitrogen Partners (RNF), which made its NYSE debut at $20 in November. The fertilizer maker is up 87%, year-to-date.

Rentech's IPO went largely unnoticed because the stock began trading on the same day as the much-hyped Groupon (GRPN) debut. It's worth noting that Groupon is down 65%, year-to-date, a stark contrast to Rentech's performance.

Rentech's subsector is better known for larger stocks, which include CF Industries (CF), Potash (POT) and Mosaic (MOS). In terms of price action, Rentech is outpacing all of those.

The stock rallied to an all-time high of $31.34 Tuesday, as well as a new closing high of $30.60. This is a small company, with a market cap just shy of $1.2 billion. It trades about 375,000 shares per day, which is not bad liquidity for a small-cap.

But young, small stocks can often show wide price swings, erratic trade, and retreats much steeper than the general market; all three of those are in evidence with Rentech. The stock is currently extended from a technical buy point. It's up 3.2% from its five-day average, meaning that a pullback could offer a new entry opportunity.

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