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 just 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 has given 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 game
Winner: Legacy Reserves L.P.

• Ticker: Nasdaq: LGCY
• Industry: Oil and natural gas exploration
• Deal terms: 6 million units, $19 per unit
• Lead manager: Wachovia Securities
• Filed: July 3
• Opening day: Jan. 12, opened flat, closed at $20.30, 6.8% gain
• Bleacher banter: The year's first IPO heralded a solid start to the new season; priced within its forecast range

On deck
Oculus Innovative Sciences

• Proposed ticker: Nasdaq: OCLS
• Industry: Health product manufacturer
• Proposed deal terms: 3.5 million shares, $8-$10 per share
• Lead manager: Roth Capital
• Filed: July 3

Game of the week
When there's only one game on the schedule, one might as well pay attention.

Oculus Innovative Sciences is a California-based pharmaceutical company formed in 1999, which develops products aimed to prevent and treat infections arising from wounds. The company's main technology is Microcyn, a topical non-toxic super-oxidized water solution designed to treat organisms which cause disease.

The company believes that the cost-effectiveness and ease of use of its products can help it become a global leader in wound care. Oculus does not yet have regulatory approval to market Microcyn in the U.S. As with many start-ups, the company has a history of losses. For the past six months ended Sept. 30, the company had an accumulated deficit of $59.3 million.

Oculus hopes to raise $31.5 million, reduced from its original $40 million goal. While some medical-related companies achieved great performances last year, others were wash-outs. A safer bet, in order to guard against any infection in your portfolio, would be to sit this game out and forego some potential upside while waiting for FDA clearance and further signs of viability.

As always, make sure you do your own warm-ups, and read a company's offering documents before getting in on the game!

Warming up in the bullpen

• AeroVironment, an aircraft systems provider, announced deal terms of 6.7 million shares at $14-$16 per share. The lead manager is Goldman Sachs.
  
• Duncan Energy, a natural gas limited partnership, announced deal terms of 13 million units at $19-$21 per share. The lead managers are Lehman Brothers and UBS.
  
• HFF, a financial services firm, announced deal terms of 14.3 million shares at $15-$17 per share. The lead managers are Goldman Sachs and Morgan Stanley.
  
• Meruelo Maddox Properties, a California real estate developer, announced deal terms of 40 million shares at $12-$14 per share. The lead manager is Friedman Billings, and the offering is expected to price the week of Jan. 22.
  
• National CineMedia, an in-theater network operator, announced deal terms of 38 million shares at $18-$20 per share. The lead manager is Credit Suisse.
  
• U.S. Auto Parts, an online auto-parts reseller, announced deal terms of 10 million shares at $10-$12 per share. The lead managers are RBC Capital and Thomas Weisel.
  
• XTENT, a biotech, announced deal terms of 4.7 million shares at $16-$18 per share. The lead manager is Piper Jaffray.

Sent down to the minors
No company announced postponements of planned offerings last week.

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

CastlePoint

• Proposed ticker: Nasdaq: CPHL
• Industry: Bermuda-based insurance
• Proposed deal terms: Not yet determined
• Lead manager: Friedman Billings
• Filed: Jan. 11

GSI Technology

• Proposed ticker: Nasdaq: GSIT
• Industry: Circuit manufacturer
• Proposed deal terms: Not yet determined
• Lead manager: Needham & Company and WR Hambrecht
• Filed: Jan. 10

MetroPCS

• Proposed ticker: Nasdaq: MTRO
• Industry: Cellular phone service provider
• Proposed deal terms: Not yet determined
• Lead manager: Bear Stearns, Bank of America, Merrill Lynch, and Morgan Stanley
• Filed: Jan. 4

Omneon

• Proposed ticker: Nasdaq: OMNE
• Industry: Digital content storage provider
• Proposed deal terms: Not yet determined
• Lead manager: JPMorgan Chase
• Filed: Dec. 29

Disabled list
Basic Care Network, a health-care services holding company, withdrew its planned offering without citing a reason.

Ryan Beck Holdings, an investment banking firm, withdrew its planned offering because of its pending acquisition by Stifel Financial.

Champions
A final "congratulations" is in order for our 2006 champs. Among companies that went public last year, these firms' percentage returns from their offer prices to their year-end closing price rank them as the top five players:

Benchwarmers
Alas, here's a final razz for our 2006 ne'er do-wells. Among companies that went public last year, these firms' percentage returns from their offer prices to their year-end closing price rank them as the bottom five players:

Groupies & 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.

Last week, the IPO-focused funds performed better than the general market, with the IPO Plus Aftermarket (FUND:IPOSX) mutual fund scoring a 3.9% gain, and the First Trust IPOX 100 (AMEX:FPX) ETF rising 3%. Still turning in solid returns, the Nasdaq posted a 2.8% advance, and the Russell 2000 gained 2.5%.

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

We're publicly offering further Foolishness:

• The IPO Lock-Up Period

Sources: Renaissance Capital's IPOhome.com, SEC filings, Reuters.

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 holds no financial position in any firms or funds mentioned here. JPMorgan Chase and Bank of America are Motley Fool Income Investor picks. The Fool has a disclosure policy.