>> Market Report -- Story Stocks (HBIO, GRMN, GEMP)
Damon Southward
Briefing.com
December 07, 2000 1:54:00 PM ET
The market for initial public offerings has been all but shut down the past two months.
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Slated to hit the market tomorrow are Global Positioning Satellite company Garmin (GRMN) and France-based provider of GSM smart cards Gemplus Intl (GEMP).
We wouldn't expect much of a first-day performance from either issue... Investors' general disinterest in new paper does not mean that this segment of the market should be passed over. Broken IPOs have consistently provided a good place for investors to search for long-term opportunities. It is also in the interest of traders to familiarize themselves with the fundamentals and market perception of recent offerings.
When the markets turn north after an extended period of decline, one of the first things this analyst does is sort through the list of companies that were taken public during a market downturn.
During periods of market turmoil, the new offering area is one of the last places that investors look to allocate capital.
Lack of initial support usually causes companies to slash their offering prices and reduce the number of shares being sold. Even then, stocks are more likely than not to break syndicate (fall below IPO price).
By the time the markets turn higher, not unusual to find a deal that hit 3 months prior trading 40%-60% off its offering price. However, turnaround quickly sends money flowing to the bottom of the market. Not unusual to see such a stock surge more than 50% over a 1-2 wk period.
The key to participating in a recovery move is knowing the difference between the real companies and those that should never have come public in the first place.
We prefer to focus on deals that were brought to market by tier-one underwriters (e.g., Goldman, Merrill, Morgan Stanley, Lehman); companies in hot spaces (currently includes fiber optics, genomics, storage, wireless); companies that are profitable or within 2-yrs of reaching breakeven.
After every market downturn we come across fantastic opportunities among battered IPOs. >>
- Eric - |
