Posted by: Aaron Pressman on August 20, 2007
There’s plenty of room to debate the merits of investing in initial public offerings but these debut stocks aren’t typically in the conversation during periods of market turmoil. Maybe they should be. Check out how some of the hottest recent IPOs, those that had the biggest pops on their first day of trading, have held up over the past month.
VMWare (Symbol:VMW) priced on August 13 at $29. It’s trading at almost $56 today. MercadoLibre (MELI) priced at $18 on August 9. It’s over $30 today. lululemon athletica (LULU) priced on July 26 at $18 and stands at almost $33 today. BladeLogic (BLOG) hit on July 24 at $17 and holds near $23. SemGroup Energy Partners (SGLP) priced at $22 on July 17 and trades over $29 now. ShorTel (SHOR) hit July 2 at $9.50 and stands over $13. There are plenty of other examples, including DataDomain (DDUP) and ComScore (SCOR). And in almost every case, the current gains include appreciation since the first day opening gain. There a few exceptions, of course. Netezza (NZ) priced at $12 on July 18 and jumped 45% but stands now around $14, for example.
It makes sense. Stocks that show a big pop on day one haven’t sold enough shares to satisfy the bulls and remain in demand even amidst a correction. That kind of shortage-induced levitation act can last at least until the company’s pre-IPO shareholders are allowed to sell more shares, typically 90 days to 180 days after the debut. There’s no ETF that buys only hot IPOs for testing this strategy, unfortunately. Then again, only IPO-related exchange-traded fund I know of, the First Trust IPOX-100 Index Fund (FPX), has done quite well recently, too. It’s up 12% over the past month versus the S&P 500’s 6% swoon, according to Google Finance.
And while we’re on the subject of IPOs, Investing Insight’s favorite video bloggers over at Wallstrip have debuted a new offering of their own, as they expand under the CBS umbrella. Every Sunday, they’ll be posting a show reviewing an upcoming or recent IPO deal. You don’t get the lovely and talented Lindsay Campbell or quite the same ‘tude but it’s a quick and entertaining run through of an IPO, if a bit heavy on the serious side of life.