IPOs: Back from the Dead?

Investors fled from such deals earlier this year, but Visa's successful debut has set the stage for a suddenly busy IPO market

A nervous Wall Street scorned initial public offerings for months, but suddenly IPOs are popular again.

Recent stock market debuts have been successful, including the largest IPO ever—Visa's (V) $19.6 billion deal—and a herd of new offerings are hitting the market soon. The next couple weeks are expected to be the busiest time for IPOs so far this year.

Investors seem more and more willing to take chances on small, fast-growing startups. That sort of appetite for risk has been hard to find since last fall, as a bear market and a credit crisis took big bites out of many portfolios.

After a tough start to 2008, the broader stock market recovered a bit. The broad Standard & Poor's 500-stock index gained 3.5% in the month before May 6. But the IPO market is doing even better. Recent IPOs, measured by Renaissance Capital's IPO index, are up 12.2% in the past month.

Visa: Signal to the Market?
One of those recent IPOs is Visa. Premiering just days after the collapse of investment bank Bear Stearns (BSC) in mid-March, Visa is trading at double its offering price of $44 per share.

Looking back, the Visa IPO might have been the turning point, says Kathleen Smith, principal at Greenwich (Conn.)-based Renaissance Capital.

Another sign of renewed interest in initial offerings was the Apr. 21 debut of Intrepid Potash (IPI). Shares in the fertilizer company are trading 55% above the offering price.

With the agriculture sector doing well despite weakness elsewhere in the economy, "people were screaming for a fertilizer company to come public," says Scott Sweet, managing partner of IPO Boutique. There was "astronomical interest" in Intrepid Potash, he says.

Offerings Unveiled
The strength of the IPO market will be tested in the next several days, as a half-dozen different companies prepare their offerings.

Colfax, a maker of pumps and valves, is attracting interest for its offering on May 8. It will trade under the ticker CFX. Solar company Real Goods Solar, with the ticker RSOL, is expected to offer stock for sale on May 8 or 9. Western Gas Partners, which handles and transports natural gas, plans to trade under the ticker WES starting May 9.

Also expected any day now is Digital Domain, a firm that creates digital imagery. It would trade under the ticker DTWO.

Expected the week of May 12 are Verso Paper, trading under the ticker VRS, and American Capital Agency, a real estate investment trust with the ticker AGNC.

So many IPOs at one time is rare, at least this year. According to Renaissance Capital's IPOHome.com, the number of IPOs so far in 2008 is down 66% from a year ago.

Tech Investors: Measuring the Recession
When the IPO market was stuck in the doldrums earlier this year, many firms decided to postpone or cancel their plans to raise capital by going public. If the current round of IPOs is successful, expect many more private companies to follow suit.

"There's a big backlog of companies that want to go public," Renaissance Capital's Smith says. "We expect to see many more issuers in the market."

The market still isn't perfect. Many firms will be forced to offer shares at lower prices than they could have commanded last year, IPO Boutique's Sweet says. Technology companies may wait until the economic picture is clearer before launching IPOs, Smith adds. Before investing in riskier tech names, she says: "I think investors want to see how deep this recession may be."

A Time for Speculation
Still, the resurgence of IPO activity suggests investors' mindsets have shifted in the past few months. In hopes of getting a big return, investors are willing to take chances, putting more "speculative money" in the market, Sweet says.

The tough outlook for the economy and the broader stock market may actually be fueling interest in IPOs. "In a low-growth environment, investors are going to look for growth companies," Smith says.

IPOs are still a gamble, as likely to lose investors' money as provide big winnings. But at a time when much of the economy is standing still, IPOs represent a chance for big returns—a chance many investors are willing to take.