For as long as I've written for Real Money, I've turned repeatedly to the topic of recent initial public offerings. When I was a growth-stock trading coach, plenty of small-cap IPOs showed potential as short-to-medium-term buys. These days, as an advisor at Portfolio, we run an Equity Overlay portfolio comprised mainly of large-caps with a smattering of mid-caps. They are all profitable, and we analyze factors such as dividend growth, sector strength and technical support when making investment decisions.
Last week, as I was randomly (and, I admit, somewhat absent-mindedly) perusing data on investment returns on our holdings, the gains in AbbVie (ABBV) jumped out at me. Not only were the returns notable, but so was the youthfulness of the company. AbbVie is the biopharmaceutical wing of Abbott Laboratories (ABT), formed when the companies split into separate entities in January. It consists of Abbott's former pharmaceutical business. Its flagship product is the anti-inflammatory drug Humira. It is also having success with AndroGel, a treatment for men with low testosterone.
The stock began trading at the beginning of this year. This is a good example of value being unlocked via a spinoff. The stock is up 18% from its closing price on Jan. 2. Spinoff situations occasionally result in an instant big-cap, and that was the case here. AbbVie's market cap is $65.3 billion. The stock trades 7.6 million shares per day, liquidity that's indicative of its standing as a favorite of U.S.-based mutual funds and hedge funds. Fund ownership jumped sharply during the first quarter, as professional investors rushed to snap up shares.
Another youthful stock in our Equity Overlay portfolio is MasterCard (MA). The stock went public in May 2006. I've tracked it for years, as it has been a growth-portfolio mainstay. It has lived up to its potential in that regard, and has advanced 8.2% year-to-date. Its fundamentals are undoubtedly spurring professional investors to jump in. Earnings grew in each of the past eight years, and analysts believe that trend will continue this year and next. Remember that MasterCard is not a credit-card issuer, but a transaction processor. That means the company stands to grow from the expanding use of electronic payments, separate from ebbs and flows in the wider global economy.
There have been indications that stocks show their best price gains within the first 15 years after going public. Package and freight transporter UPS (UPS) made its NYSE debut in 1999, so it's still within that "youthful" window. The stock has been in rally mode since November, and is currently getting support near its 10-week moving average. This is another of the holdings in our Equity Overlay portfolio. Year to date, it's sporting a gain of 13.3%. Though it's a large company with a market cap north of $79 billion, there is some "growthiness" to UPS. Analysts see earnings per share of $4.97 this year, a year-over-year gain of 10%. That's seen growing another 14% next year, to $5.67 per share. The stock has a healthy dividend yield of 3%, giving it a nice mixture of characteristics for investors with different objectives.