Cramer's Mad Money - What Makes An IPO Successful? (10/15/12)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday October 15.

Workday (NYSE:WDAY), Realogy Holdings (NYSE:RLGY), Kythera Biopharmaceuticals (NASDAQ:KYTH), LifeLock (NYSE:LOCK), Javelin Mortgage (NYSE:JMI). Other stock mentioned: (NYSE:CRM)

Is this a good time for IPOs or a bad time? Last week, there were 9 IPOs, 5 of which rose at least 20% on the first day of trading. However, 2 weeks ago, there were 6 mainly unsuccessful IPOs. Was this just a coincidence that one week IPOs were winners and the previous week, they were losers? Cramer says part of it is coincidence, but there were good reasons for the successes and failures. The IPOs last week, including Workday (WDAY), Realogy Holdings (RLGY) and Kythera Biopharmaceuticals (KYTH) have major growth, while LifeLock (LOCK) and Javelin Mortgage (JMI), from the previous week, have lackluster growth.

Workday has the same business model as (CRM), except that it doesn't compete directly with its larger rival, because it focuses mainly on human resources. The company saw 100% revenue growth in its latest quarter. The IPO was priced at $28, the stock rose to $48, before closing at $52. Cramer thinks WDAY may not be done going higher. Realogy Holdings is the largest franchiser of real estate mortgages and was involved in 26% of all existing home sale transactions involving brokers this past year. RLGY is a pure play on housing, which is an advantage, given the housing comeback. The private equity group involved in the company, Apollo, obviously believes in RLGY so much, it is still holding 48% of the shares.

Kythera has a leading treatment for double chins, and the drug should get approval by the FDA by 2014. The company is not profitable yet, but has significant funding. The stock jumped 27.5% on the first day of trading. The IPO losers were LifeLock, a company facing significant competition and charges for making false claims and Javelin Mortgage, which is a relatively unknown financial.

Growth prospects, more than coincidence, affect how well a stock does with its IPO.

Kraft Foods Group (KRFT), Mondelez International (NASDAQ:MDLZ)

After Kraft made the winning move of splitting itself up into Kraft Foods Group (KRFT), which includes food products such as Velveeta cheese, Oscar Mayer luncheon meat and Maxwell House coffee, and Mondelez International (MDLZ), whose brands occupy the snack aisle of the grocery stores, with Oreos, Cadbury and more. Cramer would buy MDLZ rather than KRFT, because the snack food business is growing faster. KRFT might have a bigger dividend, but its growth is anemic, at only 2-3% and it sells for a multiple of 17. However, MDLZ has a 13% growth rate and has significant market share, which is growing fast in emerging market countries. About 44% of MDLZ's business is international, and its brands are iconic and popular. Cramer would buy MDLZ.

Mad Mail: PSS World Medical (NASDAQ:PSSI), Allot (NASDAQ:ALLT), Procera (NYSEMKT:PKT), Tractor Supply (NASDAQ:TSCO)

PSS World Medical (PSSI) is a battleground stock, and Cramer would stay away.

Allot (ALLT) is a better stock to buy than Procera (PKT). Both companies provide services that allow clients to ensure their networks are running smoothly, but ALLT has stronger growth and is less expensive than PKT.

Tractor Supply (TSCO) is an exciting company that is taking market share and should see significant momentum.


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