People have been following the debt-ceiling debate for the past few weeks, but my attention was elsewhere. It’s fascinating what information garners headlines while others get brushed aside.
Four mainstreet brands have had initial public offerings within the past two weeks. I also looked at two other, recent name-brand offers for the purpose of this article.
- Teavana (TEA) on July 28th
- Dunkin’ Brands (DNKN) on July 27th
- Zillow (Z) on July 20th
- Skull Candy (SKUL) on July 20th
- Pandora (P) on June 15th
and of course…
- LinkedIn (LNKD) on May 19th
The first day action on these offerings was perplexing to say the least. From the pricing range – to the adjusted price- to the open, these stocks seemed to jump by leaps and bounds. Outside of Skull Candy, every other company came out of the gate 25% higher (or more) than the final IPO price.
Adjusted Pricing vs 1st Day Open (%)
Low Price Target vs 1st Day High (%)
With LinkedIn, articles suggesting the underwriters had undervalued the company began surfacing. They accused the underwriters of shortchanging LinkedIn for their own profit given that their services were paid for with a portion of shares.
All of the other companies listed here appeared to follow suit after LinkedIn. Even after the pricing ranges were raised 20% or more, these stocks still opened much higher – 185% in the case of Zillow.
Were all of these original estimates just plain wrong? It’s possible considering the same firms appeared in various combinations as the lead underwriters: Morgan Stanley, JP Morgan, Merill Lynch, Goldman Sachs, and Citigroup. But what does that say about analysts’ estimates in general?
Or it could also be possible they manipulated the system to keep the initial offerings artificially low. With their reputations on the line, would they risk future underwriting on a few new stocks?
Offerings like these don’t come around that often, and with Tech Bubble 2.0 scares, you don’t want to be left holding the stinky fish at the end of the day. Why care about valuations or future earnings when all you need to profit is be a part of the IPO.
Like a slimy catch-phrase, “with IPOs – you’re in the know” ;)
While others diligently review the filings, spend hours on analysis, and try to project the company’s success or failure – you could double your money in a matter of minutes without any thought.
So here’s the EZ IPO Profits Gameplan:
- Ignore all news about the US Economy
- Watch IPO filings
- Ask Aunt Nelda or Uncle Roger if they’ve heard of company XYZ
- Ignore all news about company XYZ
- Purchase as many shares as you can handle
- Sell immediately at market open
- Move to Tahiti with proceeds
And everyone knows what’s next… Facebook