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Picking a great stock can be extremely rewarding, even if you're not first to the party.
Titanium Metals (TIE, news, msgs), for example, has been a public company since 1996. But investors who took the plunge in 2003, when the stock was trading at about 50 cents (adjusted for splits), are up . . . well, let's just say a whole lot.
It's a similar story with Google (GOOG, news, msgs). Investors who bought the stock this time last year still haven't made any money. However, those who boarded the Google train during its 2004 IPO, at the opening price of $85, are sitting on a gain of more than 300%.
The allure of buying an IPO has faded a bit since the dot-com era, but there's still that je ne sais quoi about being in on a great stock from the ground floor.
Investing in IPOs can be tricky, though, because there's typically less information available about the company.
And unless a bank outside the underwriting team decides to cover the stock, there won't be analyst estimates to work from.
- Fantasy stock challenge: Join CAPS, rate stocks, win great prizes
The MSN CAPS investing community is helping to make new stocks more transparent by allowing investors to share thoughts and outlooks for recent initial public offerings.
I highly recommend that you visit CAPS and check out what some of the more than 93,000 participants are saying about recent IPOs, as well as the 5,500 other stocks that the community has rated.
The following is a sampling of some recent top IPOs:
| Company | Industry | Gain since IPO* | CAPS rating (out of 5) | CAPS ratings* | CAPS bulls* |
|---|---|---|---|---|---|
Retail electronic payments | 43.8% | **** | 1,311 | 1,251 | |
Industrial and hazardous waste handling | 26.9% | **** | 6 | 5 | |
Specialized health services | 14.4% | ***** | 22 | 21 | |
Asset management | 12.5% | *** | 28 | 24 | |
Outpatient cardiac monitoring | -2.5% | * | 5 | 1 | |
* As of March 26 |
Here are a few thoughts about Visa (V, news, msgs), which raised $17.9 billion on March 19 in the nation's biggest-ever initial public offering. Visa's IPO is remarkable for a number of reasons.
First and foremost, the offering was massive. This type of deal would be impressive in any market. It's even more amazing that the company and bankers got it done even though equity markets have fallen significantly this year, and nobody seems to want to own much of anything that doesn't sell oil, grain or gold. And not only did they get it done, they did it for more than the original proposed offering price.
Second is what happened with MasterCard (MA, news, msgs). In May 2006, the Visa competitor debuted on the public market. After opening at $40, it ran to $223, a cool 457% gain. A bunch of money was apparently left on the table by MasterCard.
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It seems that Visa's bankers took advantage of MasterCard's public status -- and the huge run-up in its share price -- to try to price the Visa IPO in line with MasterCard.
- Video: Visa's record-shattering IPO
Despite that, it shouldn't be all that surprising that investors got fired up about the Visa IPO. There's little doubt that investors see Visa as an opportunity to hop on a MasterCard-like ride. In addition, investors could be giving Visa points for its nonlending business model.
But is Visa stock a good deal right now? It seems dangerous to call the stock expensive, particularly after the performance of MasterCard, which many people called expensive all the way up. This time, though, we can stack up Visa versus MasterCard, a true comparable.
| Company | Market value | Forward price-to-earnings ratio | Earnings per share |
|---|---|---|---|
$29.6 billion | 30.5 | $7.99 | |
$49.3 billion | 35.4 | ($1.06) |
What does this say? To me, it suggests that Visa's bankers used MasterCard to price the Visa IPO, and investors then took over post-IPO to push the stock's valuation higher than MasterCard's. So while I'm bullish on Visa's business, the stock's current price suggests that we probably won't see a repeat of MasterCard's furious run.
Disagree with me? Head on over to CAPS and share your thoughts.
This article was reported and written by Matt Koppenheffer for The Motley Fool. At the time of publication, he owned shares of American Express but none of the other companies mentioned.
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