Whenshares of recentinitial public offering (IPO)
Boingo Wireless (Nasdaq:
surged more than 20% on June 13, investors shouldn't have been so
surprised. After all, that was the day analysts were allowed to
comment on the stock -- the end of the 25-day "
" following an
Roughly a month earlier, on May 4, to be exact, those analysts'
counterparts -- the company's underwriters -- pitched lofty
promises to get clients to buy into the deal. Now with the end of
the quiet period, analysts were just reiterating the company line
fed to them a month ago. In the case of Boingo Wireless, such
chatter was bound to help the stock. It had fallen more than 30%
since its early May debut.
I discussed this investing approach in details last fall, which
you can read about here
. Because the IPO market showed great strength in May, June is
bound to have its share of quiet period plays. In a nutshell, a
quiet period play is a small window of opportunity to buy stocks at
a good price just before analysts are allowed to comment on them,
which usually gives these recent IPOs a fresh bounce.
Here are a few IPOs whose quiet period is about to end
A trade, not an investment
When looking at these post-IPO plays, it's important not to
overthink them. Don't deeply analyze the fundamentals; instead
simply focus on what analysts might say and do. There's a very good
chance analysts will soon have target prices on the stocks that are
in line or above the price set by the investment bankers at the
time of the offering.
This means any stock that has drifted lower from the offering price
is likely to show the most solid upside, as was the case with
Boingo Wireless. Of course, a very bright outlook trumps all, so a
stock such as
, which is up nicely from its May 27 debut, could still power
higher. My colleague Andy Obermuller, editor of
bullish on the biofuel sector
and thinks Solazyme is a name to watch.
A bump up before another drop?
In late May,
looked to be one of the mostovervalued stocks in the market.
have fallen about $10 since then, and they could fall even further
as investors come to see the hot stock is cooling off. A thin
begets wild upward moves, as we saw, but can also exacerbate
selling pressure. Before this happens, though, look for LinkedIn to
post a solid temporary rebound in the week of June 20, when
analysts start to issue fresh, bullish reports. Morgan Stanley and
Bank of America's Merrill Lynch unit are most likely to weigh in,
as their firm took lead roles in the recent offering.
The Russian Google
I'm quite intrigued by
, which operates the leading search engine in Russia, with a 65%
. Shares briefly spiked above $40 in their first day of trading on
May 24, though they are now back down below $32, roughly 10% below
the opening price of $35.
The company has a very appealing long-term outlook. The Russian
Internet market is still growing (only 40% of consumers currently
have Internet access), and online ad rates are quite cheap and
bound to rise as the Internet becomes more ubiquitous in the
country. To be sure, the stock looks pricey at around 20 times
trailing sales, but the coming wave of analysts' reports should
focus on the long-term growth potential and perhaps post lofty
The broken IPO
What to make of
, an operator of dating web sites, adult-oriented media properties
and religion-oriented sites? The company's stock traded very poorly
in its May 11 debut, but shares have been falling ever since and
are now down more than 50% from the offering price of $10 in less
than a month.
FriendFinder's shares started to rebound after the company released
fairly impressive (albeit abbreviated) quarterly financial results
on June 2, but sellers took hold anew in subsequent sessions. They
may be focusing on the fact that FreindFinder carries $500 million
in debt but only raised $50 million in its IPO. Presumably,
management hoped to pull off a bigger deal to be able to pay down
debt more aggressively and found that the company's bankers simply
couldn't line up enough interest for the IPO.
Despite the high
that will weigh on the stock in the long-term, shares may get a
fresh solid bounce from the analysts' reports, which are slated to
be released later this month. Simply issuing price targets at the
$10 offering price yields 100% upside.
Action to Take -->
The IPO market has cooled in June as the market swoons, which means
these post-IPO trades won't be as abundant in July. Right now is
therefore a great time to play the "quiet period bounce" strategy
from these undervalued stocks.
-- David Sterman
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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