IPO's: Looking for Bargains

2017 is shaping up to be a pretty busy year for initial public offerings (IPOs). Through June 30, 2017, there were 77 IPOs, raising a total of $20.5 billion, according to Renaissance Capital, a firm that tracks IPOs. This compares to only 42 deals that raised $6.2 billion in last year’s first half. The total capital raised year-to-date is already higher than all of last year. Also, activity is on track to beat last year’s 105 IPOs, although it is likely to be below the annual average of 168 deals since 2010.

What’s driving the renewed interest? Much of the credit goes to the enduring strength of the bull market. Investors are clamoring for equities, particularly those with open-ended growth prospects and potentially rapid price gains. Nearly half of the recent IPOs are in the healthcare/biotech and technology sectors, many of which produced very strong gains out of the gate. For example, UroGen Pharma has gained 84% since its offering in May. Broadly, most IPOs have produced good returns, reflecting the market’s enthusiasm.

Not all deals have been blockbusters: Blue Apron’s IPO in late June turned sour, with its share price down 35% (because of concerns that it is increasingly vulnerable to competition from companies like Amazon). Snapchat parent Snap’s debut has produced a 15% loss so far. Both companies are generating ever-larger operating losses with little chance of improvement--in effect, growing their revenues by selling their services below cost. Along with FitBit (down 72%) and GoPro (down 66%), these deals indicate to us that the market continues to show some discipline.

While many of the newly-public biotech and technology companies no doubt sell interesting products and services, their strong share price momentum and high valuations put them outside of our contrarian focus--and we suspect may not be sustainable. We sifted through the roster of IPOs since the beginning of 2016 looking for stocks that investors have bypassed. Often, if a company trades below its IPO price, called “breaking its deal price,” the market will thereafter shun the stock on that basis alone. Our August 2017 Turnaround Letter details six recent IPOs by companies with worthwhile products and services, reasonable valuations and share prices below or little-changed from their debut prices.

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A Closer Look At Two Activist Campaigns

Watch to see if ADP’s CEO Carlos Rodriguez inadvertently helps Pershing, and his aggressive and sometimes personal stance against Ackman could backfire. Overall, because of the stock’s strong returns and Ackman’s weak credibility, we would give this activist campaign a low chance of making ADP a successful turnaround investment. For turnaround investors, the Trian campaign appears to have a win-win opportunity for investors--either Peltz joins the board and learns enough to re-invigorate P&G, or loses and management must either execute (boosting earnings and the shares) or they will face a more drastic proxy campaign with higher odds of success down the road. We think the P&G campaign could turn out well for shareholders.  Read More.

Warrants: A Solid Investment Opportunity

Warrants provide a valuable tool for the savvy investor. When selected and implemented well, they can be a smart addition to a diversified investor’s portfolio. Like options, warrants are not equity. They only convey the right to buy equity. As such, neither holder is entitled to dividend rights, pre-emptive rights, proxy voting or any share of any liquidation.

 

Value Investing

 

Warrants' return potential can be very high, but they also carry significant risks. Learn what they are, how they work, strategies to minimize risk and find profit with warrants.

Here's Why You Should Invest in Asset Managers

 

stock market advicex

 

This Forbes article cites a recent MoneyShow write-up that recommends investors take advantage of the strong stock market and potential interest rate hike by "putting some of your investment assets into the shares of asset management stocks."

 

The article praises The Turnaround Letter's OAK purchase recommendation and quotes George Putnam: "As the corporate debt binge that we’ve experienced since 2009 comes to an end, Oaktree will benefit from a growing number of restructurings and bankruptcies."  

 

Learn more about Putnam's investing success with turnaround stocks.