IPO Aftermarket Performance Improving, Led by Internet Companies

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The group of companies that have held their initial public offering so far this year has finally caught up to the

S&P 500

in aftermarket performance, after trailing the benchmark for most of the year.

The S&P 500 and this year's crop of IPOs are now neck-and-neck, with 8% growth from Jan. 1 through March 9, according to data tracker

Baseline

. Last month, this year's IPOs trailed the S&P by as much as nine percentage points, owing to an especially poor January and increasing choosiness by investors. The totals don't include last night's IPO of

Championship Auto Racing Team

(OPW:NYSE), which priced at 16 and is now up 27%, trading at 20 1/4 this morning.

The rebound in the performance of this year's crop of new companies may bring some stability to the IPO market, something it lacked earlier this year, says Dan Dykens, an analyst for

Renaissance Capital

. "Volume seems to be kicking back to more normal levels, and the overall quality of the new companies is good," Dykens explained. Last year, Renaissance created the

IPO-Plus Aftermarket

fund, which invests primarily in new issues.

So far this year, $3.78 billion has been raised by 73 IPOs, according to

IPO Monitor

, another database. But that's still behind last year's total at that time of $4.88 billion raised on 109 IPOs.

What may be surprising some observers, however, is the type of company leading the new-issue market's resurgence. A slew of Internet-related IPOs has led the way in climbing share prices, indicating this often-volatile sector may be gaining firmer footing with fund managers. The top-five performing IPOs (two Internet companies, one software company, and two restructured savings and loans) climbed an average 82.8% since pricing.

VeriSign

(VRSN:Nasdaq), a provider of Internet identification systems, leads the pack, leaping 118% to 30 1/2 from its Jan. 30 IPO price of 14.

DoubleClick

(DCLK: Nasdaq), an Internet advertising company, is up 88% to 31 7/8 from its Feb. 20 IPO price of 17.

CDNow

(CDNW: Nasdaq), also an Internet-related IPO, is trading well, up 61% to 25 3/4 from its Feb. 10 IPO price of 16. CDNow sells musical cassettes and CDs over the Internet.

"I think you are seeing a chase-up in Internet names," said Paul Cook, fund manager for the

Net Net

fund. "Even though the rest of the market, even tech stocks, were down (yesterday), several Internet-based companies were up." Cook explained that investors are starting to differentiate Internet stocks from other tech stocks and are recognizing the viability of Internet names. The Net Net fund, run by

Munder Capital Management

, concentrates on Internet-related stocks.

Investors are also beginning to tie the performance of Internet stocks to such sector leaders as

Yahoo!

(YHOO)

and

America Online

(AOL)

, much like broader tech stocks are tied to

Intel

(INTC) - Get Report

or

Microsoft

(MSFT) - Get Report

, Cook explained.

Even though investors have been more selective in choosing IPOs this year, demand for certain Internet stocks is still strong.

ISS Group

, an Internet security company, recently doubled the size of its planned IPO due to avid investor interest. In a March 2 filing, the company increased the amount it plans to raise to $45 million from $20 million. Both the number and expected price range of the shares were increased, according to the filing. The IPO of ISS Group, underwritten by

Goldman Sachs

, is expected to be priced as soon as Thursday, according to a source.