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CBOE: IPO Pick of the Week


Investors have been waiting with breathless anticipation for CBOE (Chicago Board Options Exchange) to enter the public markets, especially as many other security exchanges took their turn through the years. Although it may not be the best time for an IPO, CBOE will remain virtually impervious to the pessimistic markets.

The current economic environment has presented challenges for most IPOs this year, leaving many companies between a rock and a hard place having to decide to postpone the offering or lower terms between -25% to close to -50.0%.

With six IPOs scheduled for this week, many deals may be forced into that position, but as the first, and one of the largest options exchanges in the world, CBOE, expected to price Monday, is sure to buck the trend.

For investors able to get share, we suggest some levelheaded investing -- buy at the IPO and in the aftermarket, buy smartly as it moves higher and buy even more on dips.

The recent wave of negative market sentiment brought with it some new developments, including the disappointing realization by investors that Goldman Sachs' (GS - Get Report) second name might by spelled better using a different vowel. There was a time when Goldman's name was synonymous with a successful deal, but after the abysmal performance of both Niska Gas Storage Partners (NKA - Get Report) and Metals USA Holding (MUSA - Get Report), that is no longer the case; now its priority seems to be catering to the issuers rather than giving investors good value.

Goldman has repeatedly gone against the grain, pricing four of its recent deals at or above their high-end expected price range, leading investors to believe these held value. The Street has yet to resolve the fact that Goldman brought new definition to the phrase "caveat emptor" with MUSA, pricing it $1 above the original price range, followed by opening -$0.95 and closing -$1.93 on the day. If you really want to get sick, it is now trading down more than 30.0% from its issue price.

We are not saying that all of Goldman's deals need to be winners, but this disconnect between Goldman's pricing terms and the IPO's actual performances has burned bridges with some investors. However, CBOE might go a long way toward reversing the backlash Goldman has felt.

Despite Goldman also dropping the ball when it comes to supporting its deals in the aftermarket, it has been successful as far as choosing to lead some fundamentally strong companies, which did not need its "help" in order to open with a premium and maintain higher aftermarket levels.

There is no doubt that CBOE will fall into this category, generating investors' interest at the opening. Expected to be one of the top performers of 2010 to date, Goldman will most likely price the deal above its current price range of $27 to $29 and possibly increase the 11.7 million shares, hopefully not stretching the limits of investor demand.
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GS $189.15 0.25%
MUSA $60.54 2.37%
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