A quartet of mutual fund managers say they resisted the temptation to take profits on
as the stock
soared 612% on its first day of trading Friday.
Though some of the managers say the stock, which fell 4.2% Monday, may be overvalued, all said they're holding on, and some are looking for more shares once the stock price settles down. Sycamore's offering was priced at 38. In Friday's trading it rose as high as 270 7/8 before closing at 184 3/4. That was the biggest first-day rise of the year. Monday it closed at 177 1/16.
Eric Efron, co-manager of the
USAA Aggressive Growth fund, snagged 10,600 shares at the IPO price (the lion's share of USAA's total allotment of 15,000 shares). Flipping the stock, or trading out of it on the first day to take advantage of the spike, was the furthest thing from his mind, he says.
"I would say that if you look at the recent series of hot IPOs in this area, the prudent thing to do would have been to hold on or maybe buy, rather then to sell," he says.
Other fund managers are echoing the same point about Sycamore, maker of fiber-optic network systems that can be used for broadband Internet applications. They compare its early trading to that of other Internet networking firms, such as
, which was priced at 35 at its June 25 IPO and closed Monday at 257 3/4. Even at its current price, Sycamore might be considered a bargain in the future, Efron says.
"We don't want to be too quick to sell this," Efron says. "We think the company has very good growth prospects and will probably be a much larger entity a couple of years down the road. ... I see it that this is going to be one of the hotter deals of the year."
Efron's Aggressive Growth fund has returned 29.2% year to date and rose 1% on Friday, according to
Alexander Cheung, manager of the
Monument Internet fund, says he didn't get everything he wanted at Friday's IPO price and is looking to buy some more. But when the stock quickly spiked to three digits on Friday, he decided to hold back for now.
"I'm cheap," Cheung says. "The stock opened at
270, a price way above where I wanted it to be, so I didn't go to the market to buy it." But he notes he did get a "couple hundred" shares at the IPO price.
While he's hoping -- and waiting -- for the stock to come down, he says first-day investors won't feel buyer's remorse.
"I don't think there are too many people that are committed to buying this stock who would have any big regrets at this point," Cheung says.
Monument Internet is up 115.5% year to date and rose 0.04% on Friday, according to Morningstar.
Abel Garcia snagged 6,250 shares of Sycamore for his $120 million
Waddell & Reed Science and Technology fund. He, too, was poised to buy more in the aftermarket, but didn't see the price he liked, which he said was in the 80 to 90 range.
The stock "is overpriced by most valuation methods, but I go into these things thinking, can it become a large company?" Garcia says. "I'm not going to be arrogant enough to say they could become the next
-- I think that's reserved for someone maybe like Juniper Networks -- but it could be much larger in two, three, five years. So hang on if you own it."
Waddell & Reed Science and Technology is up 68.2% year to date and rose 1.5% on Friday.
Chris Bonavico, manager of the $200 million
Transamerica Premier Aggressive Growth fund, shied away from putting a number on how many shares he got of Sycamore.
But his fund, up 10% year to date, jumped 1.5% on Friday. A concentrated fund that usually holds fewer than 25 stocks, Aggressive Growth isn't one to make small bets. Bonavico wouldn't say whether he bought shares on the open market in addition to his IPO allotment, but he clearly wants a large position for his fund. Sycamore will be among the big beneficiaries of exploding demand for high bandwidth over the Internet, he says.
"For the fund, we look for opportunities in situations of change," Bonavico says. "And this is such a significant change, that it was really important to be there."