Scouting the Latest IPOs

Just like opening day at the ballpark, investing in 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 games
No games were played last week.

On deck
AeroVironment

• Proposed ticker: Nasdaq: AVAV
• Industry: Aircraft systems provider
• Proposed deal terms: 6.7 million shares, $14 to $16 per share
• Lead manager: Goldman Sachs
• Filed: Sept. 28

Converted Organics

• Proposed ticker: Nasdaq: COINU
• Industry: Natural soil amendments manufacturer
• Proposed deal terms: 2 million units, $5 to $6 per unit
• Lead manager: Paulson Investment
• Filed: June 21

Meruelo Maddux Properties

• Proposed ticker: Nasdaq: MMPI
• Industry: California real estate developer
• Proposed deal terms: 40 million shares, $12 to $14 per share
• Lead manager: Friedman Billings
• Filed: Sept. 19

Oculus Innovative Sciences

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

Game of the week
AeroVironment continues the spate of aviation-related deals from last year.

The company, formed in 1971 and based in California, manufactures small unmanned aircraft systems primarily for the U.S. Department of Defense, as well as fast-charge systems for electric industrial vehicle batteries that are marketed to commercial customers.

The aircraft systems are powered electronically, can carry electro-optical or infrared sensors, and can be launched by one person and operated through a handheld control. They fly up to 50 miles per hour and are touted for operations such as battle damage assessment, reconnaissance, surveillance, and target acquisition.

Business appears to be soaring. The company reports a compound annual growth rate of 71% for the last three years ended April 30, 2006, in addition to a $79.6 million funded backlog at the end of last April -- up $9.2 million from the prior year. For the fiscal year ended April 30, the company reported $139.4 million of revenue and $11.2 million net income, compared with $105.2 million of revenue and $14.6 million net income. Increased research and development costs and greater selling and general expenses affected last year's bottom line.

Defense stocks have fared well over the past year, and investor demand is likely to be strong. Shares are expected to start trading on Wednesday. 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
Animal Health International, a product distributor, announced deal terms of 11.8 million shares at $10 to $12 per share. The lead manager is JPMorgan.

Employers Holdings, an insurance provider, announced deal terms of 23 million shares at $14 to $16 per share. The lead manager is Morgan Stanley.

Fortress Investment Group, an asset manager, announced deal terms of 34.3 million shares at $16.50 to $18.50 per share. The lead manager is Goldman Sachs.

JA Solar Holdings, a Chinese solar cell manufacturer, announced deal terms of 15 million American depositary shares at $12.50 to $14.50 per share. The lead managers are CIBC World Markets and Piper Jaffray.

Mellanox Technologies, a fabless semiconductor company, announced deal terms of 6 million shares at $12 to $14 per share. The lead managers are Credit Suisse and JPMorgan.

Salary.com, a software provider, announced deal terms of 5 million shares at $8 to $10 per share. The lead manager is
Thomas Weisel.

Switch & Data, an interconnection services provider, announced deal terms of 11.7 million shares at $14 to $16 per share. The lead managers are Deutsche Bank and Jefferies & Co.

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 past week include:

CardioMEMS

• Proposed ticker: Nasdaq: SENS
• Industry: Medical device maker
• Proposed deal terms: Not determined
• Lead manager: Banc of America
• Filed: Jan. 19

Cellcom Israel

• Proposed ticker: NYSE: CEL
• Industry: Cell-phone service provider
• Proposed deal terms: 19 million shares, $16 to $18 per share
• Lead manager: Goldman Sachs, Citigroup, and Deutsche Bank
• Filed: Jan. 17

Greenlight Capital

• Proposed ticker: Nasdaq: GLRE
• Industry: Reinsurer, based in Cayman Islands
• Proposed deal terms: Not determined
• Lead manager: Lehman Brothers and UBS
• Filed: Jan. 16

3SBio

• Proposed ticker: Nasdaq: SSRX
• Industry: Chinese biotech
• Proposed deal terms: 7.7 million American depositary shares, $12 to $14 per share
• Lead manager: UBS
• Filed: Jan. 19

Validus Holdings

• Proposed ticker: NYSE: VR
• Industry: Reinsurer, based in Bermuda
• Proposed deal terms: Not determined
• Lead manager: Goldman Sachs and Merrill Lynch
• Filed: Jan. 16

Disabled list
No company withdrew a planned offering last week.

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

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

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.

Last week, all of our watched groupies and indexes landed in the red. The IPO-focused funds performed better than the general market, with the IPO Plus Aftermarket, a mutual fund, slipping 0.6%, and the First Trust IPOX 100, an ETF, running behind 1.6%. The Russell 2000 declined 1.1%, while the Nasdaq was the biggest loser, dropping 2.1%.

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. The Fool has a disclosure policy.