New Issues Lift Brokerages, but Old Ones Persist

Some stirrings in the new-issues market have blown brokerage stocks higher, but analysts say not to expect a hurricane.

Braving the prevailing volatility, a few newly public outfits have been nicely rewarded by Wall Street this month, stocks like TheraSense (THER), which makes a glucose self-monitoring system. It has gained 25% since it opened at $19 on Oct. 11. Odyssey Healthcare(ODSY), which went public on Oct. 30, has risen almost 20% since its debut at $15, and Principal Financial Group (PFG) is up 17% from its opening price of $18.50 on Oct. 22. Meanwhile, Anthem (ATH), a health insurance company, has gained 19% since opening at $36 on Oct. 29.

Any sign that the IPO market may be recovering can lift brokerage firms, many of which get a good chunk of revenue from underwriting. Their shares have climbed steadily over the past month, and while many analysts considered the sector oversold in the wake of the Sept. 11 bombings, the prospects for new underwriting are also a factor. Shares of Morgan Stanley (MWD) are up 9.7% since Oct. 1, while Merrill Lynch (MER) has gained 18% and Lehman Brothers (LEH) has climbed 11% over the same period.

But with trading still choppy and layoffs mounting, experts are still reluctant to base any big bets on the nascent strength of new issues. "It's a very slow market and the volatility in the marketplace makes it difficult to do transactions," said Brad Hintz, brokerage analyst at Sanford Bernstein, noting that retail investors have "abandoned the market" and that retail volumes are down 55% from early 2000 levels. It's still "a very difficult market" for the brokerage and investment-banking sector, Hintz said. He has an underperform weighting on the sector.

San Franciso securities firm Robertson Stephens joined the line of cost-cutters Friday by announcing the elimination of 300 jobs, about a quarter of its staff, in its third round of layoffs this year. Once a big gun during the Internet-stock boom, the firm, a unit of FleetBoston Financial (FBF), said it was "staffing the firm to reflect market realities." Shares of FleetBoston traded up 0.8% to $34.17 on Friday.

According to data by Dealogic, a research firm, there have been eight IPOs since Oct. 3. Year to date, there have been 69 new IPOs -- the lowest number since 1990 -- raising a total of $39.91 billion.

The IPO calendar the next two weeks shows four new offerings and eight secondary offerings. IPOs include Amerigroup, a health care company, Universal Hospital Services, Advisory Board and AMN Healthcare Services.

The demand for IPOs mirrors the market's preference for stable, growth companies. "There's certainly an appetite for IPOs on the buy side for companies that have a traditional and sound business model for growth," said Peter Algert, head of growth equities at Barclays Global Investors, noting that investors are going after sectors like health care and applied sciences. In addition, the "tremendous appetite for growth" has been stoked by the relative scarcity of new growth plays in the market, said Algert.

Nevertheless, Algert, who said he hasn't actively evaluated the IPO pipeline, doesn't expect the IPO market to regain its old stature. "I think there's certainly a potential to sell IPOs in the marketplace, but we're a long way from being back to the frenzy that we had in 1999 and 2000."

Bernstein's Hintz agreed. "Equity divisions on Wall Street are bleeding at this point," he said. "What we have right now is an engine that's running on one cylinder -- fixed income." The fixed-income market has outperformed stocks this year as investors sought safer ground. As such, Hintz believes that the laggards, at the least for the short run, are firms like Merrill Lynch and A.G. Edwards (AGE), which are more dependent on the equity business.

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