In the list of "fallen angels" below, we focus on buy-rated stocks that fell sharply in the second q...
5 Recent IPOs You Shouldn’t Overlook
08/03/2011 9:30 am EST
In the hype over IPOs such as LinkedIn, Pandora, and Dunkin’ Brands, some strong performers didn’t get the attention they may have deserved. Here are five newly public companies with solid charts and fundamentals that are worth tracking, writes MoneyShow.com contributor Kate Stalter.
Companies that began trading on the major indices within the past few years are often some of the market’s biggest price movers. Not only are investors enthusiastic about climbing onboard, but the company’s innovation and managers’ energy often spur top-notch revenue and earnings.
But some lesser-known recent IPOs are sporting strong combinations of fundamental growth and price appreciation. These could be names to keep tracking in the months ahead, to see how they perform when the next market uptrend emerges.
MedQuist Holdings (MEDH)
This Tennessee-based company went public on the Nasdaq in February at $8. It’s now trading between $13 and $14, a gain of about 63% since its debut. The company makes medical transcription and related software for the health-care industry.
It’s notched triple-digit earnings gains in each of the past seven quarters, and sales growth rates have trended higher in the past several quarters. Revenue increased 31% in the most recent quarter, indicating healthy customer demand.
The stock’s price has been trending above its ten-week moving average, a signal that professional investors have been holding shares even through the recent volatile market conditions.
The company is continuing to build up its capabilities. In July, it said it would acquire privately held M*Modal for $130 million in cash. M*Modal designs cloud-based speech-recognition software for the medical industry.
Arcos Dorados (ARCO)
Another recent IPO outpacing the broader market is the world’s largest McDonald’s (MCD) franchisee. It operates more than 1,700 restaurants in 19 countries throughout Latin America and the Caribbean.
The stock began trading on the NYSE in April at $17. It's larger than many new IPOs, with a market cap of around $5.3 billion, and trades 783,000 shares a day.
The stock zoomed higher in the week following its IPO, but has been basing lately as the general market corrected. It’s hitting resistance between $25 and $26, the same area where it turned tail after reaching a high on April 20. Ideally, you’d like to see some volume come into the stock as it attempts to clear that previous peak.
Analysts expect price growth of 52% this year and 28% in 2012, so Wall Street has some optimism about this stock. It’s a possible emerging-market play to keep an eye on.
NEXT: 3 More IPOs|pagebreak|
Closer to home, many US shoppers are aware of this health-supplement retailer, which has a presence in many malls.
The company was taken public by its private-equity owners in April, at $16 per share. The stock reversed sharply lower this week after a new intraday high of $26.48 on Monday. However, as of Tuesday, it was still trading about 49% above its IPO price.
Earnings per share came in at 40 cents per share in the most recent quarter, a year-over-year gain of 60%. Sales were $518.5 million, up 14% from a year ago.
Technically, the stock is holding well above its 50-day line, despite the selling, which coincided with declines in the general market. It also followed an earnings-driven gap-up by only a few days, meaning that some investors may have taken the market weakness as a chance to pocket some profits in GNC.
Keep watching GNC for support at or above the 50-day. If that occurs, it could offer a new entry point on the stock.
TaoMee Holdings (TAOM)
China-based IPOs have gotten beaten and bloodied in recent months, but one new stock from that nation looks hale and hearty—for now, anyway. TaoMee, a children’s online entertainment company, listed on the NYSE in June for $9. It’s now trading at around $14, a gain of 56%.
The company has reported triple-digit profit growth over the past two years, although Wall Street estimates that pace is slowing. Revenue increased 90% in the most recent quarter, a robust rate, but that rate has also been decelerating.
Though this stock has exhibited some leadership traits, use caution. It’s a very small company, with a market cap of just $522 million.
It trades 570,000 shares per day, which is not bad liquidity for a small cap. However, with many institutional investors leery of Chinese IPOs these days, this one may need some extra time to prove itself.
Price gains on this stock have been more modest than some of the other recent IPOs. However, the fundamentals are stellar, with the company posting strong earnings and sales growth rates.
With many analysts projecting an upbeat future for the natural-gas market, companies involved in the transport of the fuel are also rated as buys by many institutions. Citigroup started coverage with a Buy in May, and RBC Capital gave it a rating of Outperform.
Currently, the stock is consolidating price along its ten-week moving average. Volume has been low, which is not a bad thing when a stock is digesting early gains.
As with the other names here, watch for a heavy volume move to the upside, preferably alongside improving general market conditions.
At the time of publication, Kate Stalter did not own any of the equities mentioned in this column.
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