Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: \TITLE Date: Thu, 19 Nov 92 13:26:44 EST Message-ID: <5.1992Nov19.132644@AmeriCast.com> 11/19/92 TITLE #m#wm#m#IPOs Wake Up After Summer-Long Siesta Lance Ignon The dollar value of initial public offerings already has hit a record this year, and investors are again chasing newly issued stocks. But that doesn't mean the market for these corporate de- butants is overheated - yet. "It's not too hot. It's coming back to life," said money manager Robert Czepiel. "It got way too hot early in the year, then it died. It's now active. It's not Crazyville yet, and hopefully it won't get there." Deciding the optimum level of IPO activity is a bit like using salt. Too little and the growth-stock market is blah. Too much leads to high blood pressure - in other words, too much speculation. Czepiel, who manages the top-rated Robertson, Stephens Emerging Growth Fund, thinks today's IPO market has just the right amount of seasoning. Although IPO prices have been creeping higher re- cently, the market still is serving up quality companies at an acceptable rate. The IPO market rested for most of the summer, but woke up suddenly about two months ago. Since Oct. 5, the market's most recent low, Investor's Business Daily's New Issues index has climbed about 14%. The Nasdaq composite index has risen about 11% during the same stretch. The two markets closely track because both are made up of mostly smaller, younger com- panies. Leading the most recent advance have been Eagle Hardware & Garden Inc., Casino Magic Corp., Fourth Dimension Software Corp. and Platinum Software Inc. The IPO market has been producing a hefty share of the market's best stocks for several years. Of the 791 issues that have come public since the beginning of 1991, 70, or nearly 10%, have at least doubled in price, according to data compiled by Investor's Business Daily. The largest gainer, Marvel Entertainment Group, has soared more than 400% since debuting Aug. 15, 1991. True, plenty of IPOs fizzle. Bob Mescal, research director for the Institute for Econometric Research in Fort Lauderdale, Fla., estimates that 50% of all IPOs trade below their offering price IPOs Wake Up After Summer-Long Siesta three months to a year after their debut. Still, that leaves half at above their initial price. Excluding closed-end funds, 51 is- sues came public in October, the second busiest month on record, according to Securities Data Co. The busiest was last March, when 67 issues came out. The proceeds raised last month totaled $1.8 billion. That was a solid increase from the previous two months but well below the monthly average of $2.5 billion in the first half of the year. $33 Bil Volume Possible If the IPO market stays strong, the dollar volume could reach $33 billion this year, well above the 1988 record of $24.6 billion. With all this activity, one might assume that the IPO market has gotten ahead of itself. Not necessarily, some market-watchers say - not if the market is viewed in the context of the entire year. After peaking in early February, the IPO market went into a pro- longed slide as investors turned away from younger companies. The recent rally, some analysts say, is a recovery from an oversold condition. "It's a little bit superficial to say the secondary (stocks) and IPOs are frothy here," said Garnett Nagle, president of Boston-based Garnett Nagle & Co. investment advisory. "The background for the IPOs is the Nasdaq, and the Nasdaq is not that far ahead of itself, as some people are suggesting." Another way to gauge the IPO market is by the quality and price of the is- sues. Generally, cheaper stocks representing lower-quality com- panies begin to dominate in the latter stage of an IPO rally. This last-gasp period also is marked by complicated offerings that are harder to value, such as packages of warrants and common stocks, Nagle said. So far, Nagle and Czepiel are pleased with the quality. Nagle uses a cautious approach to the IPO market, waiting 60 to 90 days after a stock debuts before deciding wheth- er to buy. That way, the initial volatility that plagues so many IPOs is wrung out and the issue begins to trade on its fundamen- tal prospects. Some Nagle Favorites Two of Nagle's favorites include Bed Bath & Beyond Inc. and Taco Cabana Inc. Class A. Bed Bath & Beyond, a chain of giant home furnishing stores, came public in June at $17 a share. The stock lost ground in its first three weeks of trading but is now 65% above its initial trading price. Nagle expects the Springfield, N.J.- based company to earn $1 a share in fiscal 1993 ending February, up 37% from fiscal 1992. Taco Cabana debuted last month at $13.50 a share. It closed yesterday at 177/8. Based in San Antonio, Texas, the company operates a chain of low-priced Tex-Mex style eateries. Czepiel is more aggressive, scouring the market for promising issues before they come public and taking a position as soon as possible. He concentrates these days on technology companies. Like many other institutional investors, he is enamored with PeopleSoft Inc. of Walnut Creek, Calif. The stock, which is scheduled to come public this week, had a filing range of $12 to $14 a share. But Czepiel said strong demand for the issue allowed the underwriters to bump up the range to $16 to $17. PeopleSoft develops software for accounting and other cor- porate management functions. The products are designed to work with local area networks, which are sweeping the computer indus- try as corporations link disparate and geographically diverse computers. Another Czepiel Choice "It's right smack dab in the middle of the fastest-growing area of the computer market," Czepiel said. "They're a fresh face on the block with no vested interest in old technology." The money manager expects PeopleSoft to earn 47 cents share this year, up 114% from last year's 22 cents. He's looking for 60 cents a share in 1993. Czepiel also likes an upcoming offering from MB Commun- ications Inc. The Lawrence, Pa., company distributes network con- nectors and makes products that allow local area networks to com- municate over low-cost analog and digital lines. This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM