This action is precisely what I don't like about Wall Street. The analysts tend to be trend followers. And while I sense that Baker Hughes, Halliburton and Pattterson-UTI have the momentum that every hedge fund craves, and the off-shore plays are ice cold, I question the value proposition of the hot names.
Sure, the off-shore companies may have yields that are too outsized, but given that Ensco just doubled its dividend, I am not concerned about, say, an imminent cut in the payout.
So, you can go with what's steaming, knowing that you've missed big moves, or you can go with value, and wait it out until the big drilling programs kick in, knowing you have those very large dividends in your favor. I know what Wall Street wants. They want to get rich quickly. Me? I am happy to get rich slowly, because there's much less of a chance of catching a bottom than being eviscerated by a top.
Real March Madness Is in the IPO Market
Posted at 11:53 a.m. EST on Friday, March 21, 2014
You want March Madness? Genuine March Madness? Look no further than the IPO market these last few days.
It is absolutely crazy out there, with sliver deal after sliver deal coming public and immediately going to a premium. I am talking about A10 (ATEN), Paylocity (PCTY) Globoforce (THNX), Borderfree (BRDR), Castlight (CSLT) and Amber Road (AMBR) and literally about a dozen other companies that have taken advantage of the widest window I can recall to come public. This is an extraordinary moment, with many of these companies using identical buzzwords -- cloud-based, software as a service and big data software -- all kinds of companies that mimic Salesforce.com (CRM) or Cornerstone OnDemand (CSOD) or Workday (WDAY).
Meanwhile, the money pours out of those established cloud plays as if they were reporting terrible numbers when, in reality, they are delivering great ones. It doesn't matter. Consider those senior growth stocks as teams like Florida, Virginia and Michigan State and these IPOs as 16-seed colleges.
I find this rotation, which I alluded to earlier, to be frightening in its speed and breathtaking in its frothiness. Why? First, we hardly know anything about these companies. Half of them sound like beers, for heaven's sake. Second, only a small float is coming public, hence the title sliver, causing those bigger institutions who want to get what's known as a whole position to come into the aftermarket to complete it. Remember, that's how you get pops of these kinds of magnitudes. You restrict the float and then you give a growth mutual fund, say, 3% of the stock, which usually amounts to a position that's too small to matter to that client. But the client can then go in the aftermarket and buy what's necessary to get a full position and is able to use a blended average to get a decent-sized position.
So, let's take a fine Pilsner like Amber Road, which is actually a management software company for global logistics. Today, it prices 7.38 million shares at $13 and it opens at $17.50. How does that happen? Maybe a multibillion-dollar mutual fund got 100,000 shares at $13, not enough to go around. It can then buy another 100,000 shares at the opening and own 200,000 shares at $15.25. Not bad considering the stock is more than $17. Oh, and by the way, I don't mean to pick on Amber Road as 30% of the stock outstanding did come public, far more than compadres A10 at 21%, Border Free at 16% and Paylocity at 14%. Plus, that's a lot more than some of the worst of the slivers of this era, including Yelp (YELP) at 10% of the float and LinkedIn (LNKD) at 7%.