NEW YORK, May 5 (Reuter) - Brighter prospects for small cap stocks and the re-emergence of
prestigious Wall Street firms this week is leading some to forecast a change in fortunes in the
battered initial public offering (IPO) market.
But other IPO experts, who have weathered the market's rough seas this year, say the optimism is
unfounded.
This week, some of the most promising firms going public are office furniture maker Knoll Inc ( knl
), newspaper publisher Journal Register Co ( jrc ) and real estate investment trust Great Lakes REIT
Inc ( gl ).
"We could be back to the races," said IPO Aftermarket editor John Fitzgibbon. "Quality is
ratcheting up and there seems to be a general feeling that things are picking up with the Nasdaq
coming off its lows."
Small cap stocks, which have largely left out in the cold as the Dow Jones industrial average has
raced to new record, rallied on Friday. The Nasdaq Composite Index posted a record single-day
point gain Friday, surging 2.7 percent to 1305. The Russell 2000 small cap jumped 2.4 percent to
nearly 354.
But other IPO experts warned against drawing conclusions from the tantalizing one-day surge.
"It's an extremely difficult environment, with heightened volatility contributing to investor skittishness.
And despite a record Dow performance, the small caps have underperformed. Some are down 30
percent or more on the year," said Credit Suisse First Boston managing director Bob Levitt.
The indexes still sharply trail the 30-stock Dow, which is up 9.7 percent for the year. Including
Friday's gains, the Nasdaq is up only 1.1 percent while the Russell 2000 is down 2.4 percent.
He also noted that many investors are gun-shy about IPOs, which have performed poorly this year.
According to CSFB, new issues so far this year have risen on average eight percent one week after
their market debut compared to 16 percent last year. Four weeks after their debut, 1997 IPOs are
up six percent compared to 20 percent last year.
Last week, 10 IPOs raised $440 million, according to MCM Corporate Watch. April had the
lowest number of IPOs (28) in more than two years, according to Securities Data Co.
Fitzgibbon said he expects premiums of a point for Knoll, 3/4 of a point for the Journal Register, and
1/2 a point to 3/4 of a point for Great Lakes.
The deals will be sheparded onto Wall Street by underwriters Merrill Lynch and Co Inc, Morgan
Stanley Group Inc and Lehman Brothers, respectively.
Great Lakes should benefit from the recent popularity of REITs, which have posted impressive gains
this year as interest-rate sensitive stocks become more attractive with the possibility of higher
interest rates on the horizon.
REIT stocks generally do not have volatile moves because most of the money they earn is plowed
back into dividends.
The same move toward interest-sensitive securities has also helped bond offerings, and hurt IPOs.
Cash flows into U.S. mutual funds holding junk bonds jumped to $760 million last week, the largest
since AMG Data Services began tracking the data in 1992.
"You won't make a lot of money on a REIT stock" initially, said Fitzgibbon, "but you won't get
burned alive either." |
