Playing the new-issues market can provide exciting opportunities, so long as you keep your wits about you.
There have been more than 200 initial public offerings of common stock totaling $15 billion in 1993, which could become the third consecutive year of record volume. Only a general stock market correction would be capable of dampening the IPO market for very long.
To inject a note of realism here, keep firmly in mind that these latest issues aren't going to rise quickly beyond their offering prices.
"This is a volatile market, and for every Microsoft or Wal-Mart store, 10 other stocks have gone public and fallen off the face of the earth," warned Robert Natale, editor of the Emerging & Special Situations newsletter.
"Target those IPOs with fundamentals like the great companies, then be disciplined about getting out within three months, rather than holding on in hopes of doing better," he said.
Build ties with a broker who can help with selections, and communicate requests to that broker well in advance, Natale advised. A buyer of a new issue doesn't pay a commission, that being borne by the issuing company. After a new issue is initially offered, it's traded like other over-the-counter stocks, with commissions added.
"The current market is one in which you can sell new names but not old names, and the new names can become old very quickly," explained Thomas Davis, head of equity capital markets for Merrill Lynch & Co.
"An investor must show discipline when deciding the price he's willing to pay for an IPO, and my general advice is that if you know a business well, you should use your knowledge to invest in it," Davis said.
Be careful. "IPOs are not investment games for the unsophisticated, and not the place to have a disproportionate portion of assets," advised Kenneth Fitzsimmons, director of capital markets for Robertson Stephens in San Francisco. "They tend to be fairly risky, so you wouldn't want someone nearing retirement who didn't have a large net worth to get too involved."
"The biggest mistake is not getting a prospectus and buying an offering without any background on it," explained Robert Mescal, analyst with New Issues: The Investor's Guide to Initial Public Offerings.
"I'd steer clear of stocks in the low-priced 'penny-stock' area, because, even though it's been cleaned up, it's still a bad bet," he added.
New IPOs that Mescal deems worth considering include Industrie Natuzzi, Italian-based leading maker of leather upholstered furniture, to be offered at $13 to $15 a share; D.I.Y. Home Warehouse, operator of home improvement centers in the Cleveland area, between $9 and $11; and National Home Centers, operator of home improvement stores in Arkansas, at $11 to $13.
Others are Primadonna Resorts, with hotel and gaming complexes near Jean, Nev., between $14 and $16; and Jumer Hotels & Casinos, owner of riverboat gaming operations and hotels, at $14 to $16.
Older IPOs recommended by Natale include Banyan Systems, a computer communications equipment company that went public last August; Dames & Moore, a pollution control company selling for less than when it went public a year ago; and First Data Corp., a credit-card processing company that used to be part of American Express and went public a year ago.
Others are Qualcomm, which owns patents on technology for cellular telephone equipment and went public in late 1991; Scholastic, publisher and distributor of children's school books that went public a year ago; and Waste Management International, the international unit of Waste Management Inc., which went public a year ago.