The Return of the Initial Public Offering

After a drought of initial public offerings over the past few years, the IPO market finally began to perk up in the second quarter of 2009 (see chart). If the pace continues to accelerate, it could be a promising signal for investors.

Private companies seeking to raise cash may choose to “go public” by offering shares of ownership on a stock exchange. When a company offers new shares to the public, it’s called a public offering. A great deal of attention focuses on the conditions that draw companies to make their debut or “initial” public offering.

Although it can be difficult for individual investors to get in on an initial offering, IPOs can serve as a useful indicator of the outlook for the stock market as a whole. Companies that want to go public will typically wait for market conditions that could fetch a high price for their shares. Because start-ups are seen as more risky than established firms, investors may give an IPO a cool reception when overall confidence levels (and stock prices) are down.

Predictably, IPOs all but disappeared as the nation battled a recession and a bear market in 2008. It’s no coincidence that the IPO resurgence in 2009 coincided with a stock market rally that began in March of that year.

The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

Although investing in an IPO may not be appropriate for many investors, it’s still a good idea to keep an eye on the pace of new offerings. Signals from the IPO market may yield clues about the health of the broader investing climate.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

*All advisory services are offered through JWKodak Capital Management, LLC (“JWKodak”), an investment adviser registered with the U.S. Securities and Exchange Commission with offices in Austin, Texas and Chatham, Massachusetts. JWKodak and its representatives are in compliance with the current filing requirements imposed upon SEC registered investment advisers by those states in which JWKodak maintains clients. JWKodak may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notification requirements. For information pertaining to the registration status of JWKodak, please contact the SEC or the state securities regulators for those states in which JWKodak maintains a notice filing. A copy of JWKodak’scurrent written disclosure statement discussing JWKodak’sbusiness operations, services, and fees is available from JWKodak upon written request. “Drake, Saunders & Diwinsky’s web site is limited to the dissemination of general information pertaining to securities advice and advisory services, together with access to additional investment-related information, publications, and links. Drake, Saunders & Diwinsky, LTD. and JWKodak are separate not affiliated companies; however, Brian Drake and Jane Bourette, employees of Drake, Saunders & Diwinsky, are investment advisor representatives with JWKodak. The company, Drake, Saunders & Diwinsky, Ltd is NOT an investment advisor or licensed in any way to provide investment advice.

The publication of this web site on the Internet should not be construed by any consumer and/or prospective client of Drake, Saunders & Diwinsky, LTD or JWKodak’s asolicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Content in this website is for informational value only. Please consult an investment advisor representative before implementing any strategies discussed. Past Performance is no guarantee of future results.