This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Twitter, Hilton and Chrysler: Not Your Typical Late-Market Cycle IPOs

Stocks in this article: FB

By Brian Egger of

NEW YORK ( TheStreet) -- Some market watchers have noted the tendency of lower-quality companies to complete IPOs during the latter stages of a bull market. If that observation is accurate, one wouldn't know it from the roster of big-name companies that have recently announced initial public offerings.

With the S&P 500 having registered an 18% gain during the first nine months of 2013, it's beginning to feel like a late-market cycle stock environment. Investors who believe the U S stock market's bull run is long in the tooth might be wondering what to make of the recent decision by several high-profile companies to jump on the IPO bandwagon.

I once discussed the merits of a particular stock offering with a portfolio manager, who groused about the tendency of "low-quality companies" to issue equity in the latter stages of a bull market. In such periods, strong equity valuations and favorable market conditions tempt many company executives and financial sponsors to raise capital through IPOs.

In 2002, The Journal of Finance published an article about IPO activity that echoed a similar viewpoint: "It is conventional wisdom among both academics and practitioners that the quality of firms going public deteriorates as a period of high issuing volume progresses."

If there is a connection between the buoyancy of stock prices and the tendency of lower-quality companies to go public, one wouldn't know it from the roster of companies that have recently announced IPO plans. Twitter, Hilton and Chrysler are among those expected to tap the public markets. "at a time when initial public offerings are red-hot," according to Wyatt Investment Research.

The strength of the current IPO market -- a beneficiary of this year's powerful stock price gains -- has also been a surprise to market watchers. In early 2013, CNBC predicted that "a volatile year for IPOs" in 2012 would pave "the way for a potentially meager 2013."

The CNBC story cited an academic article, entitled, "Where Have All the IPOs Gone?" That article pinned the reduced number of IPOs since 2000 to regulatory compliance costs, the demise of mid-market investment banks and incentives for companies to grow through acquisitions, rather than internal expansion. Advisory firm BDO began 2013 by predicting only a 6% increase in U.S. IPOs for the current year.

In hindsight, the 2013 IPO market has been anything but meager. According to Renaissance Capital, the first nine months of 2013 saw a 54% increase in the number of IPO pricings and a 66% increase in total IPO filings.

A solid year for IPOs has unfolded against the backdrop of a four-and-a-half-year-old bull market. In the wake of last year's botched initial stock offering by Facebook (FB), the public market debut of Twitter and other household-name companies has the potential to alter investor perceptions of the risks associated with new equity issues -- and hopefully for the better.

At the time of publication, the author did not own any of the stocks mentioned. Follow @breakingcall

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Brian Egger is the founder, publisher and gaming and travel analyst of During the last twenty years, he has held positions of increasing responsibility as a gaming, lodging and travel analyst at Goldman Sachs, Donaldson Lufkin Jenrette, Credit Suisse, BMO Capital Markets and Topeka Capital Markets. He also served as Associate Director of Research at BMO and Director of Research at the Institutional Research Group. Brian has held four team positions, including two second-place rankings, in Institutional Investor's Gaming, Lodging and Leisure categories. He has also been recognized as a six-time Wall Street Journal "Best on the Street" analyst. Brian taught securities analysis to MBA students as an Adjunct Professor in the Finance department of Columbia Business School. He received a BSE from the Wharton School of the University of Pennsylvania and an MBA from the University of Chicago Booth School of Business.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,959.44 +154.64 0.87%
S&P 500 2,078.54 +7.89 0.38%
NASDAQ 4,781.4240 +16.0440 0.34%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs