2 Recent IPOs to Sell, 2 Other Stocks to Buy

NEW YORK ( TheStreet) -- The Facebook ( FB) IPO brought people into the market who might not have otherwise entertained the idea of buying an individual stock, let alone investing period. Sadly, many of the folks it introduced to the market are as turned off today as they were turned on prior to the big day.

The whole unfortunate situation reeks of Barack Obama's campaign and subsequent first-term as president.

The big O turned plenty of people on, particularly some of the nation's not-so-politically active, such as young people, only to sour many of them on the process shortly after election. Four years ago, even some conservatives gave Obama credit for inspiring people to get involved and embrace the notion of Hope and Change.

Of course, Obama ended up selling out the anti-war left and other liberals who supported him thanks to his uninspiring "pragmatic" ways. Now, he only gets support from the parts of these factions that would rather die than see a Republican in office.

There's a similar dynamic in play, at least in part, in relation to the Facebook IPO.

Facebook gave casual and non-investors a reason to get active in the stock market. On the surface, it all makes perfect intuitive sense.

Facebook has not only become part of the culture, but, unlike other IPOs, it's a profitable business with billions in revenue. Many other recent offerings can't say the same; in fact, they lose money, which, presumably and sensibly, scares people away, especially the uninitiated. Couple Facebook's success with the fact that most people use it regularly and it's no wonder interest from Main Street was high.

Sadly, plenty of good people learned the hard way when Nasdaq blew and the media overhyped the Facebook IPO. What a horrific introduction or reintroduction to investing.

On the bright side, we learned lessons from this IPO. An important one -- be careful using the investing philosophy of buy what you know. Often, it works wonders. At other times, not so much.

Consider Yelp ( YELP). Ad-supported Web sites get a bad rap thanks to companies like Yelp.

Critics of the model argue that many new and social media outlets produce nothing of value, therefore they look to stay alive by selling ads against free or run-of-the-mill content. Often, these bears simply do not understand the business model and the value inherent in the product or service (see, for example, Pandora ( P)). When assessing Yelp, however, they do not.

Yelp offers very little that is a) novel and b) exclusive. While I appreciate the concept of peers helping peers make consumption-related decisions, I need more. Advertisers probably do as well. Heck, forget the advertisers, Yelp needs more.

Amazon.com ( AMZN) provides the supreme word-of-mouth, peer-to-peer review and recommendation engine. It blows Yelp away. If it did restaurants, Yelp probably would not exist.

The platform at Amazon adds value. It does not exist to make money directly. Instead, it's there to drive purchases of the myriad things Amazon sells. Unless you can provide the advertiser (and, really, before that, the user) with something beyond a list of often mindless and endless reviews, you're unlikely to grow like the weed you need to grow like.

Yelp made a grave error when it refused to accept a $500 million takeover bid from Google ( GOOG). Now, after acquiring well-respected Zagat, Google makes it free from various parts of its site.

If Google ever gets its act together, it could put Yelp, as well as OpenTable ( OPEN), out of business in a Silicon Valley minute. While I would not call myself an ardent GOOG bull, I would buy the stock over Yelp (and OPEN) any minute of the trading day.

Plus there's really no barrier to enter Yelp's business. Often the "no moat" argument fails to understand and appreciate the complexity of a company's business (see, again, Pandora). That's not the case with Yelp, nor is it was Groupon ( GRPN).

All the proof you need for this argument sits right at your fingertips. From Amazon-supported Living Social to the slew of companies (including Yelp and Facebook) that have dabbled in Groupon's space, there's nothing stopping an existing powerhouse or your next-door neighbor from doing what Groupon does. The company needs to differentiate itself fast or die a not-so-slow death.

Groupon, reportedly, has plans to undercut companies such as PayPal with its own mobile payments system. Don't hold your breath on a long play because of this rumor. Instead, consider Annie's ( BNNY).

I realize Annie's and Groupon do not run in the same business, but they're both recent IPOs. And, more importantly, Annie's, while not competition-free, has itself well-positioned in its space.

The company's ticker stands for "Bunny," the mascot the organic and natural food company uses to market itself. Annie's makes snacks, macaroni and cheese, salad dressing and a variety of other products.

It places its products almost evenly across three key categories:
  • 36% of net sales to "mainstream grocery" stores such as Safeway (SWY) and regional chains like Wegman's.
  • 37% of sales to a variety of "mass merchandiser(s)/other channels" such as Target (TGT), Costco (COST) and Wal-Mart (WMT).
  • 27% of net sales to national and regional "natural retailers" such as Whole Foods Market (GOOG), Trader Joe's and Sprouts Farmers Market.
  • That's pretty impressive distribution for anybody, let alone one in a category traditionally thought of as somewhat of a niche -- natural and organic foods. But, as contributor Jon Markman shows in an excellent story for TheStreet's premium Real Money service, organic has gone somewhat mainstream.

    Markman nicely outlines Annie's rapid growth trajectory as well as the massive opportunity it has to capture a larger share of its target market. And, again, look at that diversification across the key retail segments. It's impressive. You will not find many organic food companies so well- and evenly-situated without an overreliance on Whole Foods or Trader Joe's.

    Bottom line -- like Google, Annie's has a pretty obvious and doable way forward; I cannot say the same for Yelp or Groupon. At least not with enough confidence to go anywhere near buying the stocks.

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

    At the time of publication, the author was long P.

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