Scouting the Latest IPOs

Just like opening day at the ballpark, investing in new IPOs holds the potential for shining promise and crushing disappointment. If you simply can't bear to merely cheer on your favorites from the sidelines, at least be careful about investing in this league. Many new issues swing for the fences during their first trading days, only to slump once marketing hype gives way to mundane earnings reports.

Don't commit an error by stocking your entire portfolio with rookies. Allocate just a small percentage of your risk capital to IPOs. Scout your potential phenoms carefully, and be choosy about composing your own rotisserie league. Investing with an eye for a season extending long beyond opening day will reward you with quality players capable of staying in the game. With that in mind, we offer our Foolish scouting report of the latest IPOs.

Last week's games

Winner: LDK Solar

  • Ticker: Nasdaq: LDK
  • Industry: Chinese solar wafer manufacturer
  • Deal terms: 17.4 million American depositary shares, $27 per share
  • Lead managers: Morgan Stanley and UBS
  • Filed: May 11
  • Opening day: June 1, opened at $28, closed at $27.20, 0.7% gain
  • Bleacher banter: Priced at high end of its proposed range

Jazz Pharmaceuticals

  • Ticker: Nasdaq: JAZZ
  • Industry: Pharmaceutical
  • Deal terms: 6 million shares, $18 per share
  • Lead managers: Morgan Stanley and Lehman
  • Filed: March 9
  • Opening day: June 1, opened at $17.50, closed at $17.73, 1.5% loss
  • Bleacher banter: Priced below lowered range of $20-$21 per share

Amicus Therapeutics

  • Ticker: Nasdaq: FOLD
  • Industry: Pharmaceutical
  • Deal terms: 5 million shares, $15 per share
  • Lead managers: Morgan Stanley and Merrill Lynch
  • Filed: March 30
  • Opening day: May 31, opened at $16, closed at $14.43, 3.8% loss
  • Bleacher banter: Priced at midpoint of its proposed range

On deck

Einstein Noah Restaurant Group

  • Proposed ticker: Nasdaq: BAGL
  • Industry: Specialty restaurant operator
  • Proposed deal terms: 5 million shares, $19-$21 per share
  • Lead managers: Morgan Stanley and Cowen
  • Filed: April 10

FBR Capital Markets

  • Proposed ticker: Nasdaq: FBCM
  • Industry: REIT
  • Proposed deal terms: 12.1 million shares, $16-$18 per share
  • Lead manager: Friedman Billings
  • Filed: April 10

Infinera Corporation

  • Proposed ticker: Nasdaq: INFN
  • Industry: Optical systems company
  • Proposed deal terms: 14 million shares, $10-$12 per share
  • Lead manager: Goldman Sachs
  • Filed: Feb. 26

Limelight Networks

  • Proposed ticker: Nasdaq: LLNW
  • Industry: Content delivery service provider
  • Proposed deal terms: 14.4 million shares, $10-$12 per share
  • Lead managers: Goldman Sachs and Morgan Stanley
  • Filed: March 23

Starent Networks

  • Proposed ticker: Nasdaq: STAR
  • Industry: Wireless infrastructure equipment provider
  • Proposed deal terms: 10.5 million shares, $9-$11 per share
  • Lead managers: Goldman Sachs and Lehman
  • Filed: March 6

Yingli Green Energy

  • Proposed ticker: NYSE: YGE
  • Industry: Chinese photovoltaic manufacturer
  • Proposed deal terms: 29 million American depositary shares, $11-$13 per share
  • Lead managers: Goldman Sachs and UBS
  • Filed: May 11

Game of the week
Tech issues from Infinera and Limelight, along with yet another Chinese solar cell manufacturer, Yingli Green Energy, may be the bigger winners in this week's lineup. Let's zoom in on Infinera in particular.

The California-based company, founded in 2000, employs approximately 617 employees. The company has developed a digital optical network architecture with what it believes to be the world's only commercially deployed, large-scale photonic integrated circuit at its core. This circuit can transmit and receive 100 Gbps of optical capacity, combining the functions of more than 60 different optical components into a pair of chips the size of a child's fingernail.

So far, a handful of customers have accounted for a significant portion of the company's revenue. Level 3 (Nasdaq: LVLT  ) and Broadwing, a company Level 3 acquired in January 2007, together account for 75% and 57% of revenue in 2006 and the first quarter of 2007, respectively.

Revenue is soaring, though the company has yet to turn a profit. Infinera generated $58.2 million in sales and a net loss of $89.9 million in 2006, compared to revenue of $4.1 million and a net loss of $64.8 million for the prior year. Through the quarter ended in March, the company recorded revenue of $49.2 million and a net loss of $19.8 million, compared to $2.7 million in sales and a $18.2 net loss in the year-ago period. The company has an accumulated deficit of $333.9 million.

The company believes that increasing demand for network capacity will increase demand for optical communications systems. Infinera believes that its system can change the economics, operating simplicity, flexibility, reliability, and scalability of optical communications networks. The company seeks to increase its customer footprint, penetrate adjacent markets, maintain and extend its technological lead, and continue investment in its manufacturing activities. Proceeds from the offering will be used for working capital and for general corporate purposes, including possible repayment of credit facilities and acquisitions.

Shares are expected to begin trading Friday. As always, make sure you do your own warm-ups and read through a company's offering documents, including the risk factors, before getting in on the game!

Warming up in the bullpen
BWAY Holding, a manufacturer, announced deal terms of 11.8 million shares at $16-$18 per share, all of which are to be offered by selling shareholders. The lead managers are Goldman Sachs and Deutsche Bank.

Sent down to the minors
Buy.com, an online electronics retailer, postponed its planned offering.

Minor-league developments
Get ready, get set ... not yet! The latest major filings announced during the last week include:

MF Global

  • Proposed ticker: NYSE: MF
  • Industry: Futures and options brokerage
  • Proposed deal terms: Not yet determined
  • Lead managers: Citigroup, JPMorgan, Lehman, Merrill Lynch, and UBS
  • Filed: May 31

Disabled list
Neff, an industrial equipment lessor, withdrew its planned offering last week, because of its agreement to be acquired by Lightyear Capital.

Champions
Meet our current champs. Among companies that went public during the last 12 months, these firms' percentage returns from their offer prices to their most recent closing prices rank them as the top five players:

Company

Return

Description

IPO Date

Riverbed Technology (Nasdaq: RVBD  )

328.9%

Tech

9/20/06

Synchronoss Technologies (Nasdaq: SNCR  )

248%

Telecom software provider

6/14/06

First Solar (Nasdaq: FSLR  )

240.9%

Solar module provider

11/16/06

New Oriental Education (NYSE: EDU  )

216.4%

Chinese educational services

9/6/06

Omniture (Nasdaq: OMTR  )

168.5%

Software provider

6/27/06

Benchwarmers
Now meet our current benchwarmers -- that's nicer to say than "losers," isn't it? Among companies that went public during the last 12 months, these firms' percentage returns from their offer prices to their most recent closing prices rank them as the bottom five players:

Company

Return

Description

IPO Date

Aventine Renewable Energy (NYSE: AVR  )

(60.1%)

Ethanol producer

6/28/06

Achillion Pharmaceuticals (Nasdaq: ACHN  )

(54.1%)

Drug developer

10/25/06

Netlist (Nasdaq: NLST  )

(53.4%)

Tech

11/29/06

Xinhua Finance Media (Nasdaq: XFML  )

(46.8%)

Chinese media company

3/8/07

MEDecision (Nasdaq: MEDE  )

(45.4%)

Medical software provider

12/12/06

Groupies and fan clubs
If you don't want to declare your loyalties for specific players, but still want to enjoy the action, consider subscribing to an IPO-focused mutual fund or exchange-traded fund. Of course, do your scouting homework here, too, and make sure you read their prospectuses before buying season tickets.

Our players all turned in solid performances last week, with the First Trust IPOX 100 (AMEX: FPX  ) , an ETF, and the Russell 2000 leading the field again this week, with each scoring a 2.8% gain. The Nasdaq rose 2.2%, and the IPO Plus Aftermarket (FUND: IPOSX  ) , a mutual fund, increased 1.8%.

Keep reading the Fool to see how your favorite players perform as they mature!

We're publicly offering further Foolishness:

New Oriental Education is a Global Gains recommendation. Omniture is a Stock Advisor selection. Try any of our Foolish newsletters free for 30 days.

Fool contributor S.J. Caplan roots for the Cleveland Indians when her husband is watching, and for the Boston Red Sox when he leaves the room. She owns shares of Goldman Sachs, but otherwise holds no financial position in any firms or funds mentioned here. The Fool has a disclosure policy.


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