Money & Investing

Sometimes, You Need to "See the Color of Their Ties"
-- Checking Out IPOs -- a Look at Talecris and Mistras

By Leo Fasciocco

Some years ago, I was speaking with top money manager Richard W. Perkins, who runs Perkins Capital Management in Minneapolis, and he made the unique comment, "Well, we'll just have to go over and see the color of their ties."

What Perk was saying, in a colorful way, was that he wanted to go out, meet and size up management and see what kind of people they were.

I had that same kind of experience years ago. I was interviewing the chief financial officer of an IPO stock involved in networking. After I finished, I was extremely impressed by his professionalism and the way he was able to relate so well with the press.

I thought this company had class and could do well. He was the financial VP of Cisco Systems, Inc. (CSCO), which went on to be a great company, and the stock performed extremely well.

These two stories are linked to what could be one of the best areas for investors to take a close look at for IPO stocks.

The stock market is now in the second year of the current bull market, which began in March of 2009. IPOs are becoming more plentiful, and there could be some great investment opportunities.

When looking for a potential IPO to buy, one should, in general, give the stock some time to trade and form a technical basing pattern. That way, the stock's price will settle down, and one will not be lured into chasing it.

Then, the classical methods of analysis can be applied. One should analyze:

The firm's earnings growth potential
The strength of its industry group
The firm's products, markets and competition
The firm's sponsorship, investment bankers
The stock's price action
The insider holdings
The management

So, how do you see the color of management's tie?

Well, the average investor cannot meet management very easily.

However, in today's Internet world, an investor can often go to a company's website and see or listen to a webcast.

That can be a big help for investors to get a feel for company management.

One recent IPO stock, Talecris Biotherapeutics Holdings Corp. (TLCR), became public on October 1, 2009. The company's website is www.talecris.com, and it gives investors a chance to hear management via a webcast.

Investors should take advantage of this kind of information not only to learn about the company but also to get a feel for how management communicates. That is important because top management will often meet with analyst groups. It is also crucial that the executives make a good impression.

Telecris’ chairman is Lawrence D. Stern. Previously, he was with Bayer Corp., where he became familiar with the plasma business.

Telecris’ stock rallied from 18 in late 2009 to a peak of 24.40 in January. The stock has backed off a bit recently. It is now at 21.56.

Telecris develops critical care treatments for people with life-threatening disorders in a variety of therapeutic areas, such as immunology, pulmonology and hemostasis.

Analysts expect Talecris to post a 14 percent increase in net for 2010, coming in at 1.46 a share, up from an anticipated 1.28 a year ago. Going out to 2011, they project a 27 percent jump in net to 1.85 a share.

One of the great technical advantages of IPO stocks at this point in the stock market cycle is that the ones that perform well after their offering have very little or no "technical overhead resistance".

That means those stocks are making new highs. That is important because no one has bought at a higher price and is anxious to sell. So, there is no downward pressure on a stock's price from that group, and the stock's price can have ease of upward movement.

That is not the case for many of the stocks that were hammered down during the bear market of 2007 and 2008. They have, in many cases, shareholders who bought at a higher price, and they may be anxious to sell just to get even. That potential selling pressure can hold a stock back.

So, going IPO hunting in a new bull market can be very profitable.

Another IPO doing well is Mistras Group, Inc. (MG), which is trading on the NYSE at 14.13. The stock has climbed from 11 last October. The company, with sales of 209 million dollars, provides non-destructive testing solutions for structural integrity on energy, industrial and public infrastructures.

Analysts expect Mistras to earn 45 cents a share for the fiscal year ending May 30, 2010. Looking out to fiscal 2011, it is projected to jump 39 percent in net to 63 cents a share.

Among other recent IPOs, STR Holdings, Inc. (STRI), a solar power play with annual sales of 260 million dollars, is doing well. The stock advanced from 10 late last year to 16.74. Earnings this year should come in at 92 cents a share. There were no comparable results for a year ago. Going out to 2011, Wall Street anticipates a 30 percent increase in net to 1.20 a share.

Some other recent IPOs are also doing well. Ancestry.com, Inc. (ACOM), is trading at 16, up from 13 late last year. Vitacost.com, Inc. (VITC) is at 11, up from 7.39 late last year, and Globe Specialty Metals, Inc. (GSM) is trading at 10.37, up from 8 late last year.

Mr. Fasciocco is the publisher of Ticker Tape Digest at www.tickertapedigest.com. He is a contributing writer for several publications. Mr. Fasciocco can be reached at leo@tickertapedigest.com.