As you know, today’s column is a look-forward to next weeks IPOs. Unfortunately,
that would be hard to do. There are only two planned for
next week. And one of the IPOs doesn’t even have an EDGAR filing!
So, instead of gabbing about upcoming IPOs, let’s cover some IPO strategies.
In 2000, the IPO market has seen the good, the bad and the ugly. Actually,
there has been lots of “ugly.”
But this is quite normal for the IPO market. After all, IPOs are typically
small businesses with new concepts. Some work extremely well, such as
Yahoo! and eBay. As for the ugly ones, they usually get delisted and you
have a tax write off.
Part of being a successful IPO investor is avoiding the disasters. Here are
some tips:
Negative Gross Margins: Stay away from these companies. True, this seems
obvious. But in the past few years, investment bankers have been willing to
take these companies public.
Litigation: Wall Street abhors uncertainty. Perhaps the most uncertain
thing is a company that faces is a lawsuit (or lawsuits). Look at the
cigarette companies. These stocks have been miserable because of the cloud
of uncertainty.
Underwriters: Stick to the big boys, such as Goldman, Morgan and so on.
Admittedly, the big boys can have clunkers, but overall their track records
are sound. As for small underwriters, they don’t have the distribution or
analyst coverage to juice the stocks.
Niche Industry: Successful long-term IPO companies are not in niche
businesses. Rather, they are in huge businesses. And they are leaders.
Auditor’s Report: This is only but a few paragraphs, but crucial. If you
see the phrases “qualified opinion” or “growing concern,” the auditor thinks
the company is close to bankruptcy. Good idea to not put money in these
deals.
Buying on the First Day: Don’t do it. On the first day of trading, there
is lots of hype (you know, interviews on CNN and CNBC). IPOs tend to fall
over time. Unquestionably, patience is a virtue.
