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4 Hot Recent IPO Stocks to Consider - 13582 views
The performance in some of these new issues has been pretty breathtaking, to say the least. SodaStream, for example, is up 53% since the company came public, while Motricity is up a gigantic 99% since entering the public markets. Tesla Motors has more than doubled during its brief trading history, from its 52-week low of $14.98 to recent highs of around $36 a share. The stock has recently cooled off and is now changing hands around $23 a share.
According to the Web site IPOScoop.com, the total return from all of the companies that came public in 2010 is an impressive 26.9%. This is a pretty solid performance when you consider that the IPOs for 2010 were spread across a variety of industries and sectors. Returns like what we saw last year are just the reason that market players should always be searching the IPO market for strong stocks that could continue to outperform.
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Instead of looking into the companies that are slated to come public in 2011, I would advise readers to look at the companies that have already come public and that are uptrending nicely. Companies that haven't come public yet have no trading history, for one thing, and it can be very hard to get a look at the financials of a firm that has yet to hit the public markets.
Make no mistake about it: There will be plenty of great companies that IPO this year. Skype and Nielsen Holdingsare two well-known firms that are slated to trade on Wall Street in 2011. But without any trading history or the ability to look at their financials, I would hold off and just be patient until those names hit the tape before considering them as investments.
That said, if you can get some shares from your broker pre-IPO, then there’s nothing wrong with taking a shot at a potential highflier with Skype or Nielsen. But for this article, I am going to focus on companies that have already come public and currently look attractive.
Here's a look at a number of recent hot IPO stocks that could be gearing up for big returns in 2011.
Are you interested in trading the foreign currency market? Well, instead of taking the risk yourself in the actual foreign exchange, or FX, market, which is highly leveraged, it might be a better idea to buy some stock in the middle man, or recent new issue and forex broker FXCM (FXCM). FXCM is a leading online provider of FX trading and related services to over 165,000 retail and institutional customers globally. FXCM offers its customers price quotations on up to 56 pairs from up to 17 global banks, financial institutions and market makers.
This forex broker came public on Dec. 2, 2010, and since then, the stock has traded in a range of about $12 a share and $15.34. Shares were recently changing hands at $13.48.
I really like this name because there aren’t as many pure publically traded ways to play the forex market as there are to play other investment service companies tied to equity, futures and options trading. If the forex market is hot and trading volumes are rising, then a name like FXCM will be sure to benefit. Again, this will give an investor a great way to play a hot forex market without actually having to take on the extra leverage to trade that market yourself.
Since FXCM is more heavily leveraged toward the retail client, the fact that the company has now become public should instill more confidence in retail clients to pick them for their trading needs over less-prestigious names in the market place.
A number of Wall Street analysts have recently come out and issued a buy rating on this stock, with Barclays Capital and UBS slapping on an $18 price target. I would suggest that readers consider buying this stock if it starts to trade above two key levels: past overhead resistance at around $14.80 and the 52-week high of $15.34. When these new-issue IPOs start to make new highs, they can really gather momentum and start to make a strong run. The perfect example of this was Tesla Motors; after the stock started to take out some past overhead resistance at $22 a share, it ran to $36 in just a couple of weeks.
If you’re looking for a support level to buy off of if FXCM continues to pull back and you don’t like to buy momentum, then I would suggest buying around the previous support at $13 to $12.75 a share. Traders could then place a stop below the 52-week low of around $12 a share to protect that trade from any big losses.
Another recent IPO that looks very compelling is E-Commerce China Dangdang (DANG), the largest online book retailer/e-commerce platform in China. In addition to books, it also offers other media products and selected general merchandise categories on its Web site, such as beauty and personal care products, home and lifestyle products, and baby, children and maternity products. China Dangdang is often referred to by traders as the Amazon.com (AMZN) of China. Since this company launched its IPO back in early December of 2010, the stock has traded within a range of about $22 a share to $36.40.
Chinese consumers seem to be changing their ways from being notorious savers to becoming a nation that looks more like America with our free spending ways. The reason that change is happening is that Chinese citizens are becoming wealthier, and their government is pushing initiatives to drive consumption growth. Another key reason for this change is due to the strengthening of the Chinese yuan, which gives local residents more buying power. According to iResearch data, sales online in China have doubled to around $80 billion in 2010, compared with total retail sales, which have grown around 20% per year in the last five years.
Clearly, Chinese consumers are moving online with their buying habits, and I believe that’s why we’re seen a number of China-based IPOs tied to this trend coming to the market. China Dangdang is one of the top ways to play this trend, and the stock has plenty of liquidity considering that the three-month average trading volume is around 4.9 million shares. What’s even better about this stock is that shares aren’t that far off the 52-week high of $36.40 at its current prices of around $30 a share. The stock has also been making higher lows for the past number of weeks, and it looks ready to challenge two key overhead resistance levels at $34.40 and the 52-week high.
It might not be a bad idea to buy this stock now, considering it has pulled back from its recent highs. Market players could simply buy the stock near current levels with a stop just below its most recent higher low of $28 a share Shares of China Dangdang are already displaying some relative strength today with the overall market trending lower and the stock up around 3%.
Another recent IPO that looks attractive is Youku.com (YOKU), a China-based Internet television company that enables consumers to search, view and share video content quickly and easily across multiple devices. Traders like to call this firm the YouTube of China. YouTube is now owned by U.S.-based Google (GOOG). The company came public on Dec. 8, and since then the shares have been extremely volatile trading within a range of around $25 to $50 a share.
China’s advertising market is quickly moving toward online ad spending as local consumers shift their buying and daily habits to the Internet. If you need proof of this sea change happening in China, then I would point to some recent data out of the state-backed industry group, China Internet Network Information Center, which said the number of Chinese surfing the Web rose by 457 million in 2010. It also said that the Chinese population of Internet users, which is now around 50% larger than the entire U.S. population, grew by 19% in 2010 vs. the previous year. Those are impressive numbers by anyone’s standards.
This is exactly why Youku.com should benefit big and ride that huge momentum shift in Chinese consumer behavior. I know that a number of observers have raised concerns about the valuation of Youku.com, with shares trading at price-to-sales of 75 with a market cap of $3.5 billion when it's estimated to bring in $102 million in revenue for 2011. However, this company is a future growth story that could take until 2013, according an analyst at Pacific Crest, to become profitable. Wall Street trades on future expectations, so if this company is the real deal, hedge funds and other large institutional traders are going to load up well in advance of the company becoming profitable.
This is way market players should consider buying this stock now with the shares well off that former high hit in December of 2010 at $50 a share. I think its reasonable idea to get long Youku.com as long as it doesn’t trade below its recent support levels of $28.75 to $30 a share. If the stock can hold those levels, then I think we have a good chance of seeing some decent upside in the near future.
Recently, analysts out of Goldman Sachs and Piper Jaffray initiated coverage on the stock with price targets of $37 and $40, respectively. The Goldman analyst even went as far as to call the stock a call option on TV transformation. What I like about both of these calls from a contrarian perspective is that both firms issued a neutral rating on the stock. This shows that even though both firms see upside, they aren’t willing to go out on a limb and issue a buy rating. That should cast enough doubt on the company to get some shorts into the name, which could provide the fuel to send it higher in the future, via a short squeeze.
One final recent IPO that could have a lot of upside potential is Molycorp (MCP), a rare earth oxide producer in the Western hemisphere that owns the most fully developed rare earth project outside of China. The company currently produces around 3,000 metric tons of commercial rare earth materials per year, and it plans to produce around 20,000 tons by the end of 2012. Molycorp came public back in late July of 2010, and since then the stock has run up an unbelievable 350%. Despite that big run, the stock has recently pulled back dramatically from its high of $62.80 a share to its current levels at around $46.
By know you have probably heard about the bull market in rare earth metals that has swept across Wall Street. The reason the bulls are frothing at the mouth over rare earth metals is because, well, they’re rare! Not just are these commodities rare, but they’re used in tons of commercial applications, from hybrid and electric car batteries, to smart phones and LED TVs to lasers and sophisticated military devices such as night vision goggles and missile guidance systems.
Right now China controls around 90% of the world’s supply of rare earth metals. However, it just recently announced plans to reduce exports of the metals, which in turn should be a major boost to the pricing power for companies playing in the space such as publicly traded Molycorp.
There’s only one wrinkle to this story, and that’s the share lockup expiration that’s hitting the tape on the stock this week. The company announced on Monday that they plan to sell $172.5 million in preferred shares to help fund the expansion of the size of its California mine. This is actually bullish news because it means that Molycorp will be able to use the new cash to help raise capacity and meet demand at the new mine.
Along with that announcement, Molycorp said some shareholders plan to sell up to $500 million of their holdings. However, that estimate is well below what some Wall Street analysts were expecting to see now that the lockup period is upon us.
I expect to see some weakness potentially find its way into the stock in the next couple of days. If that does indeed happen, I think market players should take advantage of any pullback and look to get into this name before the next uptrend begins. If the weakness I am expecting never comes, then I would consider that even more bullish for the stock since it would mean that the market is finding large institutional players who’re willing to take that excess supply at current market prices. Either way, I am bullish on the future of this stock and the future pricing power for rare earth metal producers.
To see more hot IPO stocks, check out the Recent Hot IPO Stocks To Buy portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.