7 IPOs with Lots to Offer

04/05/2012 7:00 am EST

Focus: STOCKS

Joshua Hayes

CEO, President, and Founder, Big Wave Trading, Inc.

Aside from these high-performance IPO names, stick with growth leaders such as Apple, Priceline.com, and Chipotle Mexican Grill, trader Joshua Hayes tells MoneyShow. He also explains why Groupon is not among stocks that interest him at the moment.

Kate Stalter: Today on the Daily Guru, I’m speaking with Joshua Hayes of Big Wave Trading.

Josh, a lot of market pundits are predicting where they think the market is going to go these days. I’m hearing a lot of conflicting opinions in the media. What are the technicals in the indexes telling you at this time?

Joshua Hayes: Well, it’s not so much about the technicals; it’s that price is the ultimate factor. If stocks are moving higher, if the indexes are moving higher, I believe it’s foolish to fight that trend.

In December, we started to get indications that the market did want to trend higher. I got a market model buy signal on the VIX, and basically it’s pretty much been a weak uptrend, but it’s been an uptrend. There’s just no point in fighting it.

I believe fighting is ill-advised, and right now, as long as price is moving up—even if volume isn’t there, we’re in a quantitative easing environment. I find that fighting the trend is a very foolish environment that people like to take. It is more of an ego pride there to try to be right. I just find that history suggests that markets trend more than they do not, and it makes sense to go with the trend here.

Kate Stalter: Speaking of the trend, what do you make the days of heavy-volume selling that we have seen in some of the major indexes in the past few weeks?

Joshua Hayes: The distribution is there on the S&P 500. It’s not that necessarily heavy on the Nasdaq, but it is there, and I don’t see it as concerning as if we were selling off and doing this down 1.5%, 2% consistently, and unable to rally back. Then I would be much more worried about the overall technical condition of the market.

Right now, it’s kind of premature to think that, “Oh yeah, we’re just going to die and move lower here.” Bullish sentiment is high. The Nasdaq is pretty far extended from the 200-day moving average.

Relatively speaking, the Russell 2000 continues to be an area where there’s just a lot of nice stocks. We’re not seeing the explosive growth that we’re seeing during normal uptrends, but I think that’s just a by-product of what we just went through in 2011.

Nobody can predict the future. I don’t care how many people believe that they know what’s going to happen in the future. It’s simply impossible; nobody can do it. So it’s best to just follow price, and if we’re trending higher, we should be good to go higher until we’re not. The trend is your friend until the very end when the curve changes.

Kate Stalter: You were just alluding to some of these stocks that do continue to move higher, some of the market’s best price performers. What are some of those that you are seeing right now?

Joshua Hayes: Well you have your typical big boys, the leaders, like Chipotle Mexican Grill (CMG), Priceline.com (PCLN), and Apple (AAPL).

But if you go look at the IPOs that are coming public lately, it’s clear that the IPO market is pretty bullish, pretty I guess you could say, “hot.” I don’t like to use those kinds of terms, but I guess the audience can understand them.

You have Zillow (Z) that’s moving up today; InvenSense (INVN) is another great company—they just make a lot of money. Sales and big earnings growth. EPAM Systems (EPAM), Zynga (ZNGA) is out there…there’s just a lot of nice stocks. Tangoe (TNGO) has really strong patterns and very bullish overall uptrends.

These are new stocks with new exciting products, and as long as they keep breaking out, this is probably the area that you want to focus on, especially with an upcoming Facebook IPO.

I really don’t care if the fundamentals justify the stocks rising like they are, I just care that they’re rising. I need to want to want to make money and produce capital gains, so I have to follow these guys as long as they’re moving. As long as we keep getting these IPOS with fantastic fundamentals, I think that this is the area to focus on.

Something like Francesca’s Holdings (FRAN), which nobody talks about, or US Silica (SLCA). These stocks, they make money and they’re moving higher, and it’s across the board. So the IPO market is one of the areas in the market that I’m focused on right now.

Continued…

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Kate Stalter: When you talked about some of the stocks just a moment ago, you were really talking about a number of different market caps throughout your conversation. Any divergence that people should be aware of when it comes to small- versus mid- versus large-cap?

Joshua Hayes: Well, during a strong uptrend, you normally want to see small and mid-caps lead, and also technology-based stocks. Normally whenever you see an uptrend going along and the Nasdaq and Russell start underperforming the Dow Jones Industrial and S&P 500, you know you’re probably near the end of the cycle.

We still don’t see that yet, so to say that the October rally is going to die right here is very premature. If I were to start to see the Dow Jones Industrial Average and big-cap stocks consistently outperform the small-cap stocks, and see those small-cap stocks fail left and right, then we would definitely have a problem and I’d be looking for a top here.

While I do think a pullback could definitely happen at any time and I’m prepared for anything, overall the trend is very strong, and it’s very, very bullish when IPOs and small caps are leading like they are leading.

That’s about the only kind of divergence that I guess I would see. And right now, I don’t see big caps definitely taking the lead.

However, it is kind of funny to watch Apple, Priceline, and Chipotle consistently go higher in the fashion that they are. Apple is getting quite parabolic on any arithmetic scale that I look at—weekly, monthly, daily. Until it tops, it’s just talk. Apple could go to $700, $800, $900, $1,000 before it tops.

Nobody can predict the future, that’s the bottom line. Definitely as long small caps are leading, that’s good. When you start to see big caps leading, that’s normally when you probably have a problem with this rally.

Kate Stalter: Let me just ask you one last question today, Josh, based on the stocks that you tend to follow. You were talking about the IPO market recently, and as we’re speaking today, much is being made in the media of Groupon (GRPN) having to re-state and the stock falling…that’s not particularly a name that really was on your radar, is it? Maybe you can tell us why or why not.

Joshua Hayes: Absolutely not. Groupon, first off, has never even really established a nice base. It sold off immediately after going public.

A lot of these IPOs that end up doing very well don’t see a sell-off like it did in December. As the market rallied throughout January and February, Groupon simply did not participate, and could not make new highs in February and began a downtrend.

Like I said, I follow the trend, and if the stock is moving down and the market is moving up—I want I want to be in stocks that are outperforming the market. I don’t want to buy Groupon because I think it’s a great buy at $22 and I think it’s even a better buy here at $16.

My opinions do not matter in the stock market, so it just doesn’t matter how I feel about a company that’s like that. Groupon simply doesn’t have the fundamentals necessary that these other stocks that I mentioned earlier have to produce significant gains in the future. Groupon simply just does not have it.

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