If not REITs and Dot-Coms, How About IPOs?
Initial public offerings (IPOs) usually promise that sweet sound of success – the champagne corks pop and the stock hits the market, poised to rise in value. But it’s a dicey proposition in a bearish market. Here’s what Steve Hochberg and Pete Kendall have to say about IPOs in the August 2011 issue of The Elliott Wave Financial Forecast:
The IPO market, however, continues to display a conspicuous lack of speculative follow-through. In June and July, the Elliott Wave Financial Forecast illustrated this shortcoming in the form of fizzling aftermarket re-entries by LinkedIn and Pandora, two new issues. July produced another one, Zillow, a real estate information service that allows homeowners to check the current value of their house as well as others. As one Wall Street Journal columnist put it, “What could be more enjoyable than watching the value of your largest investment plunge with the weedy bank-owned property next door?” The company has yet to earn its first dollar. [Editor’s note: Since changed; see below.] IPO investors loved the concept — at least initially. After being offered at $20 per share and tripling to $60 per share in the first few moments of trading, Zillow fell hard, to $27 a share on August 2.
Meanwhile, the Philadelphia Semiconductor Index, one measure of high-tech stock prices, is nowhere near its February peak and is down for the year. In fact, it’s helping the banking index to lead the overall market lower with a decline of over 25% from February. The latest high-tech boom is a dull roar compared to the one that ended the Grand Supercycle bull market. The past 11 years is one giant top, and, like any expiring mortal, it is re-living one of its finer moments as it breathes its last breaths.
To prove the point about the IPOs, an article in the Sept. 15 issue of the Wall Street Journal ran this headline:
That IPO Pop? Majority of 2011 U.S. Listings Are Underwater
According to a report by Dealogic, more than half the IPOs that came out this year are underwater – meaning that just like housing values going bad, initial public offerings can do the same, leaving their owners with pieces of paper that are worth less than what they paid when the company went public. Although Zillow and LinkedIn have recently managed to close above their initial prices since the August Financial Forecast published, Pandora is still below its initial price along with dozens of other 2011 IPOs.
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