WASHINGTON, November 7, 2014 – It’s a relatively boring day for stock trading today, and for the Maven at least, that’s actually a good thing. The relative lull this Friday offers a chance at last to come down from Tuesday evening’s Election 2014 adrenalin high.
Alaska is still subject to rural vote fraud and Louisiana is still subject to Democrat-establishment vote fraud. But when all is said and done, the U.S. Senate should add two more new senators to the elephant count when the new Congress convenes in January 2015.
That said, given President Obama’s clueless yet arrogant excuse for a press conference Wednesday, we have to assume some fireworks in next week’s lame duck session as well as after the first of the year. This is a president that does not take kindly to democracy in action. He’ll do his level best to squash it if the new Republican congressional majority thwarts any aspect of his relentless drive to establish a Chavetista government in the U.S.
As for Wall Street and stocks in general, after staging some bragging (energy stocks, including coal) and some hissy fits (solar stocks and solar related companies) based on the election results, things have settled down a bit this morning, though the aforementioned areas of strength and weakness remain.
IPO Fun and Follies
The Maven is happy with two last-minute IPOs he climbed into last night, both priced this morning. As with all IPOs, however, these are crapshoots and we’ll see how they turn out.
The first of these is Freshpet Inc. (FRPT), which is sort of like the Whole Foods of pet foods. These are the guys who put a glass door refrigerator in your friendly local Petsmart or Petco to house their offerings of absolutely fresh, refrigerated, shelf-life sensitive dog and cat foods for elite, discriminating pets.
Their products are premium-priced, the better, we suspect, to make owners (and presumably their persnickety pets) rejoice in the knowledge that their favorite in-house critters are getting a decidedly better diet than all them yahoo pets and pet owners. Like the Maven for example. Our new kitty, Abby the (part) Abyssinian−and her delicate intestines−both prefer only dry Purina Focus. How utterly plebian.
At any rate, when the FRPT offer priced up and seemed to be heating up last night, we decided to get in, and were actually allocated shares. Pricing was above range at $15 per share, and when the issue actually opened on the NASDAQ this morning, it popped but good. After hitting 20.45, it eased off a bit and is currently trading (12:15 EST) at about 19.85, good for about 33% to the good.
Who knows? Maybe this stuff is really tasty. But Abby tends to detest most “wet” foods, preferring only the dry stuff, along with an occasional romp with the beam from the Maven’s laser light toy. So likely, we’ll never learn whether discerning kitties−or at least this one−prefer gourmet items in the cat or dog dish.
Our brokerage house, as we’ve mentioned before, requires* us to keep these shares for at least 30 days before we dump them, though, so we’ll need to be patient to see if this one has staying power.
That 30-day hold rule has been a mixed bag over the years, particularly recently. Last month, for example, we picked up the IPO shares of a reasonably respectable solar power company, Vivint Solar (VSLR). In this case, the issue was priced significantly lower than the initial suggested price, perhaps because the market was seriously softening at the time and couldn’t absorb the price.
In any event, VSLR priced at $16 and promptly began to tank. Too bad we couldn’t get rid of it, riding it down to $9 and change before it started inching back up again. Just when it was about to recover its IPO price, however, the Tuesday election results tanked all solar stocks as we’ve already noted. VSLR is currently hovering around $14 and change.
Our 30 days in VSLR were up November 1 and we’re debating whether we should take our loss at this point or hold out for some numbers. VSLR was actually a viable spinoff of a larger, publicly-traded company and has a track record, so it’s not another totally taxpayer supported entity. That said, however, with the entire group getting hammered post-election, it’s not certain we should keep this puppy around. Decisions, decisions.
We actually hate most solar companies, BTW, because they’d all be in Chapter 11 sooner or later were it not for huge taxpayer subsidies, courtesy of our warmist White House. But, as the Maven has explained before, you have to be cynical about IPOs or you have no business rolling the dice on them.
Prior to this week’s elections, it was business as usual for these subsidized entities, which, of course, hugely contributed to the Democrats with your money. So you go with the flow if you’re an investor.
For example, if you’ve regularly read this column, you’ll know that the Maven made a tidy profit years ago on the Solyndra IPO. (Yes, that Solyndra.) We dumped it not long after our 30-day hold was over and never looked back. Those who kept buying it are probably still writing it off, even as the Chinese investors who bought what was left of this boondoggle are still laughing all the way to the bank.
Back to the present time, a few days after entering into Vivint Solar hell in October, we took another chance, putting in for 200 shares of a new biotech IPO, Atara Biotherapeutics (ATRA).
Typical of biotech IPOs, there’s probably no danger that ATRA will ever turn a profit during what’s left of the Maven’s lifetime. But that’s not why we buy these things. ATRA is in Stage II trials (that means sort of promising) on new formulations that address tough-to-solve things like the kind of muscular deterioration that occurs in maladies like muscular dystrophy and Lou Gehrig’s Disease.
You need to graduate, though, from Stage III trials before you get to a viable product, however, and it’s a tough slog. But any drug in this area would be a major breakthrough and would make all ATRA’s losses seem worthwhile—not only to the company’s officers and shareholders like the Maven, but also to sufferers of these horrendous diseases, most of whom face a dim future.
If you score government approval after a Stage III trial, you basically coin money as fast if not faster than the U.S. Treasury. And that’s the allure of these dicey stocks. Hence, the dramatic action in ATRA. Its IPO was priced at $11, significantly above its expected range. As of noon today, it’s now at $28.50, a staggering 150% gain at this point.
As we’ve mentioned, the Maven was only able to obtain 100 shares. Rich guys get most of these goodies, but even 100 shares is better than none, so we’re not complaining. But we still have a few more days to hold before getting rid of them.
And we might hold them a bit longer if brokerage houses recommend the stock after the “quiet period” for this IPO ends. That’s a period of time during which everyone involved in the offer has to shut up according to the regs, the better to get a bit of stability in the issue before the brokerages start pumping it or dumping it.
Nothing underhanded about this, because it’s the rules. But outcomes can be weird to unpredictable. As in Vivint. Its underwriters came out with wondrous recommendations to buy after VSLR’s quiet period ended, estimating you could get upward of a 30% gain if you bought at its new, lower price and held it for awhile. This may be true, but the elections tanked it again, so there you go.
Our other IPO this morning wasn’t really an IPO, but what’s called a “secondary.” This is an offering of stock from an already publicly traded company, in this case, Western Digital (WDC), a well-respected manufacturer of memory and storage devices among other things.
WDC has been doing pretty well lately, and its expensive secondary was estimated to be priced at $100 per share, about where it was trading.
Secondaries are often dilutive to earnings, which tends to get them priced down rather than up. By dilutive, we mean that the company’s earnings, moving forward, will be at least temporarily lower per share because those earnings are priced into more shares. It’s simple math, really. So new, secondary shares “dilute” the earnings per share of those who already own the stock. Hence, the price weakness.
True to form, when the news came out yesterday—secondaries can be offered and priced rather suddenly—WDC immediately traded down roughly 3 points, likely pulled down there by investors and hedge funds that already had some idea (or illegal insider info) about where the diluted price belonged.
The funny thing, though, is that as far as we can see, these particular shares already existed, owned by Japanese tech manufacturer Hitachi as a result of purchasing WDC’s Irish subsidiary some time ago. Hence, at least in the Maven’s feeble grasp of this, the “new” shares were really not dilutive at all.
At any rate, the market treated them as if they were, and the issue was finally priced last evening at $96 per share. 100 shares of this kind of stuff is a little pricey for the thoroughly middle-class Maven. But WDC has tended to be a high quality company and it currently has a lot of buy recommendations out, so we bit.
At this point, we’re feeling lucky, but who knows? WDC shares popped to $98 and change on the open, and are trading there right now, just after noon EST. Again, secondary or not, we still have to hold these puppies for 30 days, so wish us luck.
As we say, you never know. And as Yogi says, “It ain’t over ‘til it’s over.”
But that’s the way the IPO cookie crumbles. If you play the game right and don’t buy every one of them, you stand a good chance of making some better-than-average returns. But you can also get hosed, a downer we’re currently experiencing with Vivint.
And that’s the main reason we took this otherwise lazy Friday to tell you our current IPO stories. If you’re interested in this sort of thing, give it a shot with money you might not need for junior’s second-semester tuition. But do remember: although IPO adventures are the market’s equivalent of an educated crapshoot for an educated investor, they are, in the end, still a crapshoot.
Holiday Trading Note:
Tuesday, November 11, 2014 is a Veterans Day, a Federal/Bank holiday. If you don’t work for either the Feds or a bank, you will likely have to go to work on Tuesday. Markets, however, will be open as usual for trading. BUT—Tuesday will not be a settlement day.
Ditto for Canadians, interestingly enough, although their holiday is called “Remembrance Day.” (Ours used to be called “Armistice Day” when it was established after World War I.)
For the uninitiated, when you buy or sell a stock, “regular way” settlement occurs 3 business days later. I.e., if you need to use the money from a sell order, Tuesday won’t count for one of those 3 business days.
That’s just an FYI. You really shouldn’t trade that way, but sometimes you need cash and there’s no avoiding it. But just make sure if you trade around any holiday, you check with your broker if you need to make a withdrawal.