5 Hot IPOs

Picking a great stock can be extremely rewarding, regardless of whether you're first to the party. Titanium Metals, for example, has been a public company since 1996, but investors who took the plunge in 2003 when the stock was trading at around $0.50 (split-adjusted) are up, well ... let's just say a whole lot.

It's a similar story with Google. Investors who bought the stock this time last year still haven't made any money. However, those investors who boarded the Google train at its 2004 IPO, at the opening price of $100, are sitting on a gain of more than 300%.

The allure of buying an IPO has faded a bit since the dot-com era, but there's still that je ne sais quoi about being in on a great stock from the ground floor. Investing in IPOs can be tricky, though, since there's typically less information available about the company and, unless a bank outside the underwriting team decides to cover the stock, there aren't any analyst estimates to work from.

The Motley Fool's new investing community, CAPS, is helping to make new stocks more transparent by allowing investors to share their thoughts and outlooks for recent IPOs (as well as more than 5,500 other stocks). The following is a review of some recent top IPOs:

Stock

Return Since IPO

Total CAPS Ratings

CAPS Bulls

CAPS Rating (out of 5)

Visa (NYSE:V)

43.8%

1,311

1,251

****

Heritage-Crystal Clean (NASDAQ:HCCI)

26.9%

6

5

NR

IPC (NASDAQ:IPCM)

14.4%

22

21

*****

RiskMetrics (NYSE:RMG)

12.5%

28

24

***

CardioNet (NASDAQ:BEAT)

(2.5%)

5

1

NR

Source: IPOHome, Yahoo! Finance, and CAPS. NR = no rating.

I highly recommend that you visit CAPS and check out what players are saying about these offerings. In the meantime, here are a few thoughts about Visa:

Head and shoulders above
The current market environment isn't exactly conducive to setting IPOs on fire -- unless, of course, your name is Visa.

Visa's IPO is pretty remarkable for a number of reasons. First and foremost, the offering was massive. The $19.1 billion that Visa ultimately raised made it the largest IPO capital raising in U.S. history. This type of deal would be impressive in any market. It's even more amazing that the company and bankers got it done even though equity markets have fallen significantly this year, and nobody seems to want to own much of anything that doesn't sell oil, grain, or gold. And not only did they get it done, they got it done for more than the original proposed offering price.

Second is what happened with MasterCard (NYSE: MA  ) . In May 2006, Visa competitor MasterCard debuted on the public market. After opening at $40, it ran to $223, a cool 457% gain. A bunch of money was apparently left on the table by MasterCard.

However, it was tougher to price MasterCard at the time because there wasn't a directly comparable company already in the market. Many investors focused on the comparison to American Express (NYSE: AXP  ) , which has a very different business model. That company actually lends money to the cardholder, unlike MasterCard and Visa, which let banks do the lending.

It seems to me that Visa's bankers took advantage of MasterCard's public status -- and the huge run-up in its share price -- to try to price the Visa IPO in line with MasterCard.

Despite that, it shouldn't be all that surprising that investors got fired up about the Visa IPO. There's little doubt that investors see Visa as an opportunity to hop on a MasterCard-like ride. In addition, investors could be noticing the nonlending business model and giving Visa points for that.

But is Visa stock a good deal right now? It seems dangerous to call the stock expensive, particularly after the performance of MasterCard, which many people called expensive all the way up. This time, though, we can stack up Visa versus MasterCard, a true comparable.

Company

Market Cap

EV/Revenue

Adjusted Trailing P/E

Adjusted EV/EBITDA

Visa

$49.0 billion

8.3

41.9

24.4

MasterCard

$29.5 billion

6.6

27.2

21.8

Sources: Yahoo! Finance, Visa's final IPO prospectus, and most recent MasterCard 10-K filing.
Notes: EV includes all sources of cash less all debt and litigation reserves. Adjusted earnings and EBITDA backs out the one-time litigation provision in fiscal Q4 2007 (ending 9/30/07) and assumes a 39% tax rate.

What does this say? To me, it suggests that Visa's bankers used MasterCard to price the Visa IPO, as noted above. Investors then took over post-IPO to push the stock's valuation even higher than MasterCard's. So while I'm bullish on Visa's business, the stock's current price suggests that we probably won't see a repeat of MasterCard's furious run.

Don't agree with me? Head on over to CAPS and share your thoughts. While you're there, you can check out some of the thoughts that more than 93,000 CAPS members have shared on the 5,500-plus stocks currently rated.

More CAPS Foolishness:


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Related Tickers

4/24/2014 11:27 AM
V $209.92 Up +1.10 +0.53%
Visa CAPS Rating: ****
AXP $87.80 Up +0.67 +0.77%
American Express CAPS Rating: ****
MA $74.40 Up +1.04 +1.42%
MasterCard CAPS Rating: ****

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