November 22, 2006
By Damian J. Troise AP Business Writer

NEW YORK — With Thanksgiving near, some investors in the U.S. IPO market have reason to give thanks while others can certainly feel they got stuck with a turkey.

Investors gobbled up shares Chipotle Mexican Grill Inc. when its IPO hit Wall Street Jan. 26 at more than double its offering price. The jump in value was more than just a fleeting surprise though, and investors continued to enjoy strong returns from Chipotle throughout the year, with the stock gaining 39.2 percent to reach $61.23 as of Tuesday from its closing price of $44 the day it went public.

Gains made after the first trading day are more meaningful to individual investors, who often don’t get to buy shares at the offering price. Underwriters usually sell those initial shares to institutional investors.

While investors feasted on gains from Chipotle, the much-anticipated IPO of Internet phone company Vonage Holdings Corp. produced the year’s biggest turkey, starting on its first day in the public sphere. Shares opened at the offering price of $17 on May 24, but closed at $14.85 on the Nasdaq. The slide continued and the stock had lost 54.9 percent to $6.70 by Tuesday.

Varying factors have determined what companies came out on top and which tanked, and the roster of IPOs sagged and withdrawals increased during a rough patch in the middle of the year, but overall the IPO market has been strong for 2006 amid an upbeat year on Wall Street.

So far, there have been 167 IPO’s with total proceeds of $37.1 billion, according to Renaissance Capital. Last year there were a total of 194 IPO’s at value of $34 billion. IPO’s have given investors a return of 22 percent on average this year, compared with 18 percent last year.

Some of the winners include MasterCard Inc., representing the financial services sector and Volcano Inc., which makes medical diagnostic devices. Data services company Riverbed Technology Inc. also is among the top performers.

“It’s a really diverse market,” said Linda Killian, fund manager for IPO Plus Aftermarket, which is advised by Renaissance Capital.

High-risk companies haven’t fared as well, she said, but winners like Chipotle continue to do well because they are delivering on already strong fundamentals. Losers, like Vonage, may have lost simply because of the type of initial buyer for the stock.

“I think the underwriters thought they had this deal sold lock, stock and barrel simply because Vonage was growing so quickly,” she said.

But the buyers were likely not as committed to sticking around for the long-term, she said, and the stock’s drop on the first day had a cascading effect.

Companies seen as being in more stable sectors have done well, such as financial services. Mastercard Inc. priced below its offering range on May 25, but closed the first day higher. Since then the stock has more than doubled to $100.60 as of Tuesday.

Biotechnology companies also held their own in the winners group. Omrix Biopharmaceuticals Inc. shares had a slim gain on day one of trading but have nearly tripled to $30.82 as of Tuesday. Acorda Therapeutics Inc. also nearly tripled from its first-day closing price of $6.72 on Feb. 6 to $19.94 as of Tuesday.

Some early-stage biotechs didn’t fare as well. SGX Pharmaceuticals Inc. closed at $5.75 Feb. 3, below its offering price. It has since plummeted to $2.86.

A series of factors, including slowing gross domestic product, under-control inflation and lower oil prices could continue to bode well for the market and IPOs.

“I think there will be one more push in December, since the economic backdrop is still pretty good,” Killian said.