IPOs for the rest of us

Today I received a great question, one which prompts me to elaborate on trying to get the lowest price possible the day an IPO hit’s the street for public trading.

Here is a great article on how IPOs work based on the ever famous Google IPO, although GOOG was supposed to be available to the "average investor" lots of good info here:
http://www.signonsandiego.com/uniontrib/20040812/news_1b12google.html

The primary factor here is that unless you have a large account (read most likely millions, I have heard of some getting in with reasonable accounts in the six-figures) with one of the underwriters or brokerage houses directly involved with the IPO. So unless someone has any way the rest of us can get in on an IPO at the IPO price this is how I have done it in the past.

I use TDAmeritrade for my active trading and Sharebuilder for my more dedicated long term buys, neither are participants in IPOs.

To get a low price you need to get in early, however the ticker is not available to trade on normal trading accounts until the day of the IPO.

TDAmeritrade will actually accept orders a few minutes early on “opening day.” If you try the looking up the ticker on Ameritrade it will not show until 10-20 minutes prior to the open. So I set my limit order to what I am willing to purchase and keep submitting until the system identifies the ticker and accepts the order.

Now, I have been successful this way, most recently on the VMW IPO which I got in on opening day at 51, much higher than the 28 others got but still below the 120+ it hit. Although in an attempt to not be greedy or emotional I sold before that 120+ moment. However, the possibility still exists that using a plain-jane limit order might prevent you from filling your order if you are setting stops or instructions of All or None, etc…

I figured this out from some research which pointed me to the 15-20 minutes early on Ameritrade to realizing that the trading house wouldn’t quote the new ticker until then preventing me from setting a limit order the night before like I would usually do.

RENESOLA IPO Opens Today!

NEW YORK, Jan 29 (Reuters) - Chinese solar wafer maker ReneSola Ltd (SOLA.L: Quote, Profile, Research) said on Tuesday that it priced the initial public offering of its 10 million American Depositary Shares (ADSs) at $13.00 per share.

Each ADS represents two ordinary shares of the company. They will start trading on the New York Stock Exchange on Jan. 29 under the ticker symbol "SOL", it said.

Visa IPO, what else...

So what advice do I have today... Well, not much. So let's talk about the upcoming Visa IPO. It is scheduled to happen sometime within the next 12-months, plenty of time to shift resources around to get ready to buy the day it opens. First, how do you do this, for those of us who are mortals I like to place a limit order at which I am willing to buy and keep hitting the order button until it is accepted at the earliest possible time. This works with TDAmeritrade since they let you submit right before the bell. This is how I got in on VMW at 51. (Just a word to the wise, Wall Street can be brutal, if you saw, VMW dropped 22 after the bell today since it's forecast isn't what WS wanted to hear) So, store your cash and subscribe to my blog as I will be posting more on when some of my favorite IPO's are supposed to happen.

Back to Visa, my concern here is the current economy and the credit problems already encountered. If the consumer doesn't gain confidence on spending or more banks are forced to write off bad credit the potential for Visa to not do as well as expected is there. What is the issue you might ask? Well, again for us mortals who won't be getting in at the opening price we should be a little more conservative in what we are willing to pay. Otherwise expect some good near-term profits to be had.

Currently Visa's lead underwriters include JPMorgan and Goldman Sachs. GS had an outstanding year despite all the economic turmoil. You can visit the SEC website to obtain the prospectus.

Automated Investing

Automated investing is one of the easiest, best ways to start an investing program. If the money goes directly to the investment before your pocket you are much more inclined to continue and realize that you don't necessarily miss it each month.

Sharebuilder and ETFs, Control, flexibility and discipline. I am starting to use automatic investing in PBW and QQQQ through sharebuilder. This is cheaper than commission through my on-line broker and happens automatically. Both of these ETFs contain most of the companies I discuss and with the current economic situtation should be a good place to open with a sizeable chunk of change and then continue to contribute over the long run. Plus they are ETFs so I have the ability to sell on the open market in the wake of news and research instead of waiting for someone to compute the NAV the following day after the news has had a chance to affect the fund price.

Another good recommended automated investment is MCD DRIP program MCDirect, of course, info here: http://www.mcdonalds.com/corp/invest/mcdirect_shares_prospectus.html. A great dividend payout from them is one reason that makes them a strong holding in the portfolio.

Can't make up its mind

That goes for everyone. How is it that we believe Wall Street has a mind of its own and that it must be satisified in order to bring the economy back to pre-recession days. If a child were to act this emotional they would be looked at like a spoiled brat throwing temper tamprums. How is lowering the interst by by 3/4 points going to help the average american begin making more purchases off-credit when they still live in fear of losing their home, paying for healthcare and trying to keep their gas tank full? It can't as proven by today's U.S. futures and the European indexes. Although the Heng Seng rose over 2000 points that was b/c it hasn't had a chance to react to the Fed decision and the recent earnings report.

So what does this mean, I think IMHO it means to start holding on to some cash and get smart on some of this years potential profit makers. The Visa IPO is scheduled for this year. This needs to be watched as the number of late payments across 30, 60 and 90 days increases. Then there are some tech stocks of some companies that I grew up with, namely the following

MySQL - Widely used open-source database.
Ingres - Currently profitable looking at a mid-year IPO
SugarCRM - Again profitable
ExactTarget Profitable
Parallels – Server virtualization software and a VMW Competitor targeting the Small and Medium Business

So my strategy is to close some positions and place that money into a high-yield savings account. This money will be marked for taking advantage of one or more of these IPO's.

Additonally I am beefing up my PBW ETF holdings in my belief in the need for alternative energies and to keep a look at companies that may profit from the "green-jobs" being touted by the current Presidential candidates.

Remeber don't by a stock on the way down. Look for the indicators that show a greater probability of floors being hit and buy the rebound. IBD top 100 is a good start.