Going Past the IPO Hype

 | Dec 09, 2013 | 9:45 AM EST  | Comments
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As the year winds to a close, I decided to take a look back at the 2013 IPOs to see if there was anything interesting to catch my eye.

There have been a few hits, such as Solarcity (SCTY), ChannelAdvisor (ECOM) and Exone (XONE). There have also been some colossal failures, such as Cyan (CYNI) and Model N (MODN). But for the most part, this year's IPOs are noteworthy for their very lack of noteworthiness.

About one quarter of this year's offerings are relatively unchanged from their initial opening price points. Meanwhile, the overall market continues to push to higher highs. Are there any gems just waiting to catch up or will these laggards be the first to fail when the market does turn?

Overall, in this market environment, the laggards concern me. But as I perused the list, a few names stood out for their continued potential into 2014. The three that made the top of my watch list were Hannon Armstrong Sustainable Infrastructure Capital (HASI), Norwegian Cruise Lines (NCLH), and Zoetis (ZTS).

Hannon is one of only two publicly-traded real estate investment trusts (REITS) dedicated to sustainable infrastructure and is a leader in financing clean and sustainable energy projects. Currently a little more than 50% of its portfolio of managed assets focus on energy efficiency, about a third focus on clean energy and the remainder focus on other areas of sustainable infrastructure.

Hannon made its debut on the New York Stock Exchange on April 18. This is not a particularly exciting IPO and I do not expect it to soar in the year ahead. But what does catch my eye is its potential for consistent growth as a backbone stock for diversifying a longer-term portfolio. As a REIT, Hannon Armstrong is well suited for tax-sheltered accounts such as IRAs since its distributions are not considered qualified dividends and are instead taxed as income.

Hannon Armstrong has been trading in a range ever since its initial IPO. The lows within the range average around $11.20 a share, while highs have been holding at about $12.40 a share. The channel's bias favors an upside resolution, so I will be monitoring pullbacks within this range for buying opportunities in the months ahead.

Another recent IPO that still interests me at these levels is Norwegian Cruise Line, which also just announced plans for a secondary offering. Rival Carnival Cruise Lines (CCL) has been struggling with its image in recent years and an aging fleet has opened the doors for competition. Its second major rival, Royal Caribbean (RCL), has faced its own recent woes due to unexpected repairs on its Allure of the Seas. Its Feb. 23 sailing has been cancelled as a result.

With several new ships at its helm, Norwegian will be able to charge a premium over Carnival and Royal Caribbean. The slew of positive reviews for its current and new ships doesn't hurt either. The company's 4,100-capacity Norwegian Epic was rates the "Best Overall Cruise Ship" by readers of Travel Weekly.

Norwegian Cruise Lines has been trading within a channel as well since its initial IPO, but unlike Hannon Armstrong, that channel has had a slightly-upward bias after a strong opening run back in January and February following its IPO. Like Hannon Armstrong, momentum within this channel also favors an upside resolution and I will be monitoring Norwegian Cruise Lines over the next several months for daily and weekly corrections to pick up shares in a longer-term portfolio.

The third IPO from the class of 2013 that I like is Zoetis. Zoetis, a spinoff from Pfizer (PFE), produces vaccines and drugs for animals ranging from livestock to family pets. Zoetis shares have done relatively little since its IPO last February. Shares were initially higher, but the stock began to correct off highs in March. After falling to under $29 a share in late August, Zoetis started making a comeback in September. It is currently congesting between $31-33 a share. This has created an inverse-head-and-shoulders buy pattern on the weekly timeframe and offers an attractive level to initiate a longer term investment.

As we look ahead to 2014 and all the excitement that accompanies a new year of IPOs, such as China's e-commerce site Alibaba, San Francisco-based Dropbox and even Pinterest (just to name a few), I always like to find those companies that go past the hype to create balance within my portfolio.

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