To pull off a successful
initial public offering (IPO)
, bankers need to drum up lots of interest. That's bad news for
companies that went public last month.
Many investors and traders tend to take time off in August, and
demand for IPOs can be quite weak. Of the 10 IPOs in August, only
three are basking in the after-market glow. (
MakeMyTrip (
MMYT
)
has soared, as it is seen as the
Priceline.com (Nasdaq: PCLN)
of India). The other seven are treading water or are already
underwater.
But these laggards may be the beneficiary of "the quiet period
game." This game was used to great effect in the 1990s, and has
still been somewhat effective in recent years. Here's how it works:
Analysts that work at the company's underwriters are refrained from
speaking or writing about that banking client for 25 business days.
Once that period ends, a flurry of new reports are issued, often
times with a bullish tone. So the "quiet period" strategy is to
identify which stocks are likely to have their praises sung by
analysts. You then buy those stocks before the 25 business day
quiet period has ended.
For example, the first five names on the table below are likely to
receive new (and possibly bullish) analyst coverage next
week.
|
Company
|
Date of IPO
|
Offer Price
|
Recent Price
|
Gain/Loss
|
Market Cap. ($mill.)
|
Description
|
| Gordmans Stores (Nasdaq: GMAN) |
8/5 |
$11.00 |
$10.62 |
-3% |
$198 |
Department Stores |
| Ambow Education (
AMBO
) |
8/5 |
$10.00 |
$9.30 |
-7% |
$663 |
Education/Training |
| NXP Semiconductors (Nasdaq: NXPI) |
8/6 |
$14.00 |
$11.79 |
-16% |
$2,550 |
Semiconductors |
| IntraLink Holdings (
IL
) |
8/6 |
$13.00 |
$13.00 |
0% |
$641 |
Collaborative Software |
NuPathe
(Nasdaq: PATH) |
8/6 |
$10.00 |
$7.81 |
-22% |
$114 |
Drug Manufacturing |
| China Kanghui (
KH
) |
8/11 |
$10.25 |
$12.80 |
+25% |
$279 |
Medical Devices |
| MediaMind (Nasdaq: MDMD) |
8/11 |
$11.50 |
$11.95 |
+4% |
$214 |
Publishing Software |
| MakeMyTrip (Nasdaq: MMYT) |
8/12 |
$14.00 |
$32.80 |
+134% |
$581 |
Travel Agency |
| RealPage (Nasdaq: RP) |
8/12 |
$11.00 |
$16.97 |
+54% |
$1,050 |
Enterprise Software |
| WhiteStone REIT (
WSR
) |
8/26 |
$12.00 |
$11.70 |
-3% |
$112 |
Retail REITs |
This list includes all IPOs from August that are worth at least
$100 million. We'll need to await those analysts' reports to get a
better sense of sales and profit forecasts, but you can read up on
the company's operating history by reading its S-1 filing, which
can be found at
www.sec.gov
.
A few these deals would seem to be less-than-timely, like
Gordman's Stores (Nasdaq: GMAN)
, for example, which operates 68 stores in the Midwest that are a
cross between a traditional department store and a discount store.
It may be a solid business, but there's so little interest in
retail stocks right now that you have to wonder why management
didn't wait to pull off this deal until the
economy
and retail spending improve.
And for some of these deals, the results are even worse than you
think.
NXP Semiconductor (Nasdaq: NXPI)
hoped to go public at around $21 a share but had to settle for a
$14 price. Shares have now fallen below $12, and analysts are
likely to note that they trade at a healthy discount to other chip
stocks, even as those rival chip stocks are floating just above
lows.
Despite the weak share price performance, NXP, which makes a wide
range of chips that go into a host of different applications, is
actually faring quite well right now. In mid-August, the company
announced that quarterly sales shot up more than +40% (on an
apples-to-apples basis) compared to a year ago, thanks to a
combination of higher unit volume and firmer prices. That led to
robust 40% gross margins and a swing from a loss last year to
nearly a $100 million profit this time around. (The company has
been unprofitable in recent years.)
But NXP has a few strikes against it. First, being domiciled in the
Netherlands will make it hard to stay in close contact with a U.S.
shareholder base. Second, as long as investors are gloomy about
tech spending, it's unlikely they'll embrace this
business model
. But shares may get a nice lift when analyst coverage starts to
ramp up after Labor Day.
IntraLink Holdings (
IL
)
was going to go public, hell or high water. The company tried to go
public in 2000 and again in 2005. If it didn't happen in 2010,
they'd likely be ill-inclined to wait until 2015. All that time
sitting in the
IPO
waiting room didn't help: This provider of group-based training
services has never managed to reach profitability. And with new
companies entering the space, it is unclear if the company ever
will.
Potential Winners
Looking at the underperformers on this list, a pair stand out as
potential rebounders.
NuPathe (Nasdaq: PATH)
has completed all three phases of clinical testing for its topical
patch treatment for migraine headaches. The company hopes to submit
an application for approval to the FDA in the fourth quarter, which
could boost shares. If approved, sales would likely begin in 2012.
It's hard to gauge the market opportunity for this drug right now,
so keep an eye out for analyst reports (and possibly bullish
ratings -- especially with the stock down -20% since the IPO)
sometime next week.
China Kanghui (
KH
)
also may hold some real appeal. The company is a leading supplier
of orthopedic surgical devices in China, which is a vastly
under-penetrated market in terms of health care spending and also
has a rapidly aging population that will increasingly require
orthopedic help. Morgan Stanley and Piper Jaffray served as the
firm's underwriters and could issue bullish initial reports around
the second week of September.
Action to Take -->
The charm of all of these IPOs is that they had to aggressively cut
their
IPO
prices to get their deals done (except for MakeMyTrip and
RealPage (
RP
)
), so they are likely to appear cheap compared to other
publicly-traded rivals -- a key point that will surely be noted in
the upcoming waves of
earnings
reports.
Further research on NuPathe and China Kanghui is warranted, as they
possess intriguing growth opportunities.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
More...
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.