The IPO Buzz: Bulls in the Tent

A two-day rally at year end added nearly 300 points to the Dow Jones Industrial Averages (DJIA) and trimmed its 2008 loss to 33.8 percent. It closed the year at 8,776.39 — UP 16.2 percent from its previous low of 7,552.29 set on Nov. 20, 2008.
 
Note: A 20 percent rally off a previous low is generally considered a bull market. The DJIA needs to close above 9,062.75. It closed on Friday at 9,034.69 — UP 19.6 percent from its Nov. 20 closing low.
 
By the close of business on Jan. 2, 2009, barreling into bull market territory was not the problem for the other major U.S. stock market indexes.
 
The Nasdaq Composite Index closed at 1,632.32 — UP 24 percent from its previous closing low of 1,316.12 set on Nov. 20, 2008.
 
The S&P 500 closed at 931.80 — UP 23.8 percent from its previous closing low of 752.44 set on Nov. 20.
 
Worth noting: All three major U.S. stock indexes closed at their lows for 2008 on Nov. 20.
 
A Notoriously Bad Year
Now here’s what took place in 2008. The Dow Jones Industrial Average had to reach back 77 years to find a worse performance. The DJIA closed at 77.90 on 1931, DOWN 52.7 percent from 164.58, its close on 1930.
 
And last year’s stock market got off to a stumbling start. The DJIA lost 3.05 percent its first week and had fallen 4.63 percent by the close on Jan. 31, 2008.
 
And the other major stock market indexes fared worse.
 
The Nasdaq Composite Index lost 5.56 percent its first week and had dropped 10.98 percent by January’s close.
 
The S&P 500 lost 3.86 percent its first week and had shed 6.12 percent by January’s close.
 
That set the tone for the rest of the year and for the IPO market.
 
Bankers were able to price five deals in January 2008 plus seven SPAC offerings. That turned out to have been the best month of 2008. With falling stock prices, the IPO traffic dried up. To underscore the lack of IPO traffic, only one deal made it out the door during the year’s last four months.
 
Simple Recipe for Success
The key to the IPO market is simple — a decent stock market. There is plenty of data that backs up this bold statement. We saw what happened to the IPO calendar last year when stock prices collapsed.
 
Many have been focusing on the negatives. They missed the bigger picture.
 
Most of the IPO “gurus” have been recently quoted in saying they expect IPOs to come back by mid-year. They could be surprised.
 
Consider the following:
The popular U.S. stock market indexes have broken though into bull market territory or are on the brink thereof.
 
The IPO pipeline is primed. It lists about 75 deals in registration looking to raise over $19 billion, according to U.S. Securities and Exchange Commission filings.
 
There are some great companies waiting to go public, such as A123 Systems (Nasdaq: AONE proposed), Mead Johnson Nutrition (NYSE: MJN proposed), and Rosetta Stone (NYSE: RST proposed), just to mention a few.
 
All it will take to get the IPO Express back on track is for the bull market to continue and for a few good names to be priced -– and priced cheap — to have good aftermarket performances. The IPO gates will open.
 
It’s worked in the past.