November 28, 2003

Busiest IPO Month in Past Two Years

BY KEN HOOVER
INVESTOR'S BUSINESS DAILY

The new issues market heated up in November as 15 companies came public, the most in two years, according to Renaissance Capital of Greenwich, Conn., which tracks and invests in IPOs. Renaissance portfolio manager Kathleen Smith sees a solid 10 or more deals in December, a month usually hobbled by the holiday season.

But it’s still nothing like the high-flying days of 1999 and early 2000, when investors threw money at any offering with dot-com in its name, whether it made a nickel in profit or ever would. “The most interesting thing about this market is that it’s finicky,” Smith said. “Investors aren’t gobbling up everything in sight.” The one industry group without earnings is biotech, and the flow of biotech issues has been particularly slow, Smith said. “That tells you there’s some discipline out there,” she said.

IPOs Doing Well

This year’s crop of new issues has done fairly well. IBD’s New Issues Index, which measures the performance of stocks coming to market in the past year, is up 37.9% for the year going into Friday. Smith’s own Fund, the $22 million IPO Plus Aftermarket Fund, is up 47.94% this year, according to Morningstar Inc., after struggling in the bear market. The Fund invests in IPOs and stocks that have come public within the last three years. The 51 names coming public this year have an average gain of 26%, Renaissance says.

Among November’s new issues that Smith likes are Sirva, (SIR) Whiting Petroleum (WLL) and Marlin Business Services (MRLN). Equipment leasing firm Marlin came public Nov. 12 at 14 and closed Friday at 16.74. Oil and gas explorer Whiting, an Alliant Energy (LNT) spinoff, came out Nov. 20 at 15 and closed Friday at 16.54. Smith says it has 5,000 producing wells. Another new stock that she put into her fund is Sirva, which helps companies relocate employees. Sirva came out Tuesday at 19. It closed Friday at 18.08, but Smith says she still likes it.

Gone from the 2003 IPO market are the dramatic first-day pops of late 1999 and early 2000. As the bubble was about to burst, the typical new issue doubled on its first day of trading. Novice investors considered it a sure thing. The game of flipping, selling into a crowd of buyers, became a profitable sport. Smith says the average first-day pop this year has been 15%, in line with the historical norm. Four of last week’s six IPOs declined in their debuts.

The general market indexes have been advancing for more than a year, and the IPO market is just now coming to life. “I’m surprised it hasn’t picked up more than it has,” said Jay Ritter, a University of Florida finance professor who tracks IPOs. “The three-year bear market did depress valuations. There’s also the poor performance of the tech sector. There are not a lot of young companies making money combined with the hesitation to finance companies without a proven track record.”

Smith also notes the IPO pipeline has been slowed by new regulations, such as the Sarbanes-Oxley Act, with which companies must be ready to comply before going public. “Wall Street was kind of frozen until the smoke cleared on those issues,” Smith said. “That happened during the summer.” Despite the Nasdaq’s rise of over 40% this year, there will still be less than 100 new issues, Ritter notes. According to Renaissance Capital, there have been only 51 deals this year. Compare that with 247 in 1998, 480 in 1999 and 406 in 2000. In the bear market years of 2001 and 2002, there were 83 and 70, respectively.

Copyright: Investor’s Business Daily