Is this Next Batch of IPOs the Catch of the Day, or Another Facebook?

The S&P is fighting to climb back into the green this afternoon and continue the four-day rally we’ve enjoyed as investors have grown more optimistic. But what’s interesting is that there really haven’t been any big changes to the U.S. recovery or the ongoing malaise in Europe.

Instead, much of the current optimism is due to some positive distractions in the usual doom-and-gloom news cycle. First, we’re on the 13th day of the London Olympics and the spirit of competition has gripped nations around the world. Also, much of the U.S. is becoming increasingly fixated on the approaching Presidential Election as the two candidates promise the moon in the hopes that they can convince voters that they are the best fit. And above all else, investors are now more eager than ever to try their luck with Initial Public Offerings, the latest distractions to hit Wall Street.

IPOs are coming hard and fast, and Wall Street has been caught hook, line and sinker. But is this truly a golden buying opportunity, or is this a red herring that distracts investors from earnings season? I’ll answer that question in just a moment, but let’s first review the biggest new launches on the Street:

Just a few weeks ago, I covered the hype surrounding the launch of Five Below Inc. (FIVE), Dollar General Corp. (DF) and (KYAK) and Palo Alto Networks (PANW).  Those were shortly followed by IPOs from Mexican restaurant chain Chuy’s Holdings Inc. (CHUY), enterprise software company E2open (EOPN) and organic grocer Natural Grocers (NGVC). Of these five companies, we’ve seen an average 6.5% gain since launch, with over 20% gains from both FIVE and CHUY.

And of course no article covering IPOs would be complete without providing an update on this year’s biggest launch: Inc. (FB). If you hold shares of FB, you’ll want to pay careful attention to the stock on August 16. That’s because come next Thursday, Facebook insiders will be able to sell their shares for the first time since the May 18 IPO. The expiration of the lockup period is expected to open the floodgates to an additional 1.88 billion shares by the end of the year.

Naturally, this selling action could bring further downside to the stock, and plenty of investors have caught on already, sending shares of FB down 35% in the past month alone. I’ve said it before, and I’ll say it again: I won’t add FB to my Portfolio Grader tool until this company has four solid quarters of earnings announcements under its belt. Until then, I recommend that you leave this stock be and let other investors sweat the upcoming expiration date.

In fact, that applies for all of the latest IPOs. The fact is that no amount of hype can replace the value of cold, hard data, and we really need the numbers to speak for themselves before buying into these companies. If you’re really itching to buy into a new Wall Street player, a number of last year’s largest IPOs have just been added to Portfolio Grader:

Of the 10 stocks listed up here, I’d really only consider four of these good buys. I’ll continue monitoring new public offerings as they are added to Portfolio Grader, and I’ll let you know if any have good profit potential.


Louis Navellier

Louis Navellier

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