Word: ipos
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...late 1990s, the manic period most people associate with IPOs, were all about founders cashing out of profitless ventures. Yes, IPO prices doubled overnight in that supercharged period. But most of the stocks ultimately crashed and burned. Today's IPOs are well grounded; most of the companies already make money, and they're raising new capital on investor-friendly terms to reinvest for growth...
Consider SigmaTel, which makes computer chips used in MP3 players. It's in a hot field, it has survived for a decade, and it turned profitable this year. Two-thirds of the $150 million raised by its Sept. 18 IPO will stay with the company to fund things like research and development. (Yes, its honchos will net a bundle, but they have actually earned it.) The stock made its debut at $15 and now trades in the low $20s. This is fairly typical of the kind of company selling initial shares--and of the market's receptiveness...
Some of today's IPOs are even more seasoned--like Journal Communications, a Midwestern newspaper and media company, and National Financial Partners, a financial-services firm run by Jessica Bibliowicz, daughter of Citigroup chairman Sandy Weill. Both make money, and both have seen their shares rise in a modest but steady fashion. "Very few companies today are able to raise money on just a wish," says Jay Chandler, head of equity syndication at Merrill Lynch. "That late-'90s-style IPO market is not open for business...
Which is why you might want to tiptoe back into the IPO tulips with dollars you've marked for high risk. After tumbling to their slowest pace in 30 years (just 10 IPOs came to market in the first half of the year), IPOs have begun a nascent recovery. Buoyed by an economic recovery, 18 companies sold initial shares in the third quarter, and a notable backlog is building. In every cycle, the best companies go public first. In general, these are companies that were strong enough to survive the weak economy. Also, investment bankers realize they need a string...
There's still plenty of risk. On the docket are a dozen unproven biotech firms. Money-losing companies like Anchor Glass and Red Envelope have already slipped through the IPO window. Yet even these outfits are a cut above the dogs of the '90s. The biotechs are nearing approval for new treatments. Anchor, which makes bottles for Snapple, shed pension and health-care costs in bankruptcy court. Red Envelope is an online gift store that should be profitable next quarter, says Linda Killian, a partner at the IPO research firm Renaissance Capital...