Wednesday, September 23, 2009

No, a rash of IPO's is not bullish

AlphaNinja - I have heard about 1,000 talking heads imploring us that this week's potential banner IPO sales (they haven't happened yet as of Wednesday afternoon, FYI!!) mean the market rally is not only for real but will continue. Citing "investor demand," "renewed confidence," and a million other slogans to generate enthusiasm.

I'm not against a further stock rally, nor against these upcoming IPO's - but to suggest that they alone warrant a bullish stance on the market just defies reason. If that were the case then real estate giant Blackstone's IPO would have signalled good times ahead, instead of the absolute peak for the Dow:

If you had a slew of shares of your own private firm, when would you sell? When investors are freaked out and running from stocks, like in March? When you think the market is undervalued and not giving stocks the prices they deserve? HELL NO -->> you'd sell when investor sentiment is high, if not irrationally high. You want the highest price for your shares, just like people who own IPO shares.

With that said, here's a look ( page + my comments) at this week's supposed offerings:

Always something to look at is what percent of their shares are insiders cashing out. If it's their entire stake, run away - they're not going to be investing alongside you. Selling a quarter or a third of their stake is MORE than understandable, as they've been overworked and underpaid for years, so a payday is due them.

Among them is a123, wildly unprofitable:

The two facing the most trouble are probably the REITs Apollo and Colony. As Bloomberg notes, they're cutting their offerings in half, likely due to a lack of interest. What I wonder is, if they had kept the original share offering amounts, would they have had to cut the price, thus accept a lower valuation? Probably.

"Apollo Commercial Real Estate Finance Inc. and Colony Financial Inc. both halved the size of their initial public offerings, a sign that investors remain wary of plunging into commercial property debt. Apollo Commercial, a New York-based real estate investment trust set up by Leon Black’s Apollo Management LP, cut its stock sale to 10 million shares from 20 million, according to a U.S. Securities and Exchange Commission filing. Colony Financial, a Los Angeles REIT set up by Thomas Barrack’s Colony Capital LLC, reduced its offering to 12.5 million shares from 25 million, according to a separate filing. "

Also noteworthy is that the Chinese video game firm Shanda has increased its offering of shares from 63million to 83.5million - wow that must signal increased demand! Nope, seeing as they're leaving the price unchanged. If you want to make your head spin, have a peek at Shanda's ownership "organization" chart:

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