(OT) Here's an attempt at a formula for playing this hot IPO market at the moment:
1) Read the 'bible' (I mean ipocental.com )
2) Look for companies in hot sectors: networking and telecom equipment, Internet plumbing services, wireless, web hosting, application service provision (ASP), etc. Ignore content based Internet companies that rely on advertising. In general, ignore e-commerce pure-plays. I regard those spaces as played out especially now that the first movers are off their highs and people have been burnt.
3) Filter out a) companies that were formed less than a year a go (many of which are just blatently cashing in, like AKAM and Webvan) b) companies with slow revenue growth (VIXL). WFII stands out because it has been around for several years, employs a large group of experts with unique skills, makes money, has blue chip customers, has offices around the world, and is obviously for real. Most of these recent .com IPOs don't add up to anything.
4) Look for companies that are unique pure-plays in their sector, or which own their sector (SWCM is a great recent example). Avoid companies which have pure-play competitors which are already public. For example, companies like NAVI may have their work cut out to get the attention of investors when a company like EXDS is already seen as the gorilla in their sector (although this "rule" kept me out of ISLD and look at _that_ recently!)
5) Filter out IPOs that are being heavily hyped in the press and by the companies themselves because these may well be too expensive on the first day of trading and so overvalued that there is practically no upside available (e.g. AKAM).
6) Read the companies' website and see if they are for real. Search Forbes.com and Redherring.com for background. Look at the vacancies list on their website. Companies that are growing and doing well should have big lists of vacancies. Look at the management page. If there is a photo of the CEO, does that person look trustworthy? ;).
7) Look for IPOs that are being overlooked in the press or overshadowed by a hyped up or very well known IPO, especialy if they are coming out on the same day. This will attract the attention of the newbie momentum players and provide a nicer price for you.
8) Look at the likely market cap and figure out what you think the company may be worth. Now triple it to get the offical overvaluation :). Look for similar companies and see what the market overvalues them at.
9) Decide before hand what your strategy is...day trade, short term, long term hold. Don't let the stock price determine this.
10) Use a limit order when the stock opens if you are interested in buying on the first day. See what happens when it opens. If the Nasdaq is having a really bad day you may be able to get it at a discount (like ATON).
11) Keep tracking the IPO through its quiet period. If you have been watching a whole bundle of IPOs recently, they have each behaved differently. Some have provided excellent buying ops in the weeks following their opening (look at charts for SWCM, INAP, etc).
12) Don't sell too soon. Sometimes it takes time for Wall Street to figure out what some of these companies do and what they are worth. And for the story to get across to all the other rabid speculators who you hope to eventually sell your stock to.
Well after all that..it's still a pretty hard game to play! There's no shortage of exceptions to the above "rules". But why not play it while the going seems to be good. Who knows how long this will go on for.
Good luck to all. I still think investing in yourself, not stocks, is the best investment! |
