This week, Solarwinds (NYSE: SWI) became the first venture capital-backed initial public offering (IPO) in more than nine months. That’s a significant event for those who watch the IPO market… it’s also significant for the rest of us – after all, IPOs can be a pretty good indicator of how the stock market is turning.

And in 2009, things haven’t been turning very fast…

In the first quarter of 2009, there were only two new IPO deals done globally; that’s compared to the 100 deals done in the first quarter of 2007. It wasn’t for a lack of eligible companies either: all told, 26 firms withdrew or postponed their initial public offerings this year. That’s no surprise given the global economic slowdown that started last year.

When companies are considering going public, how the market’s faring can have a big effect on them. That’s because the market dictates just how much capital a newly minted stock is able to raise. Investors in bear markets are a lot less likely to pony up as much cash to buy and IPO stock than those who are investing during a market rally. And studies have shown that the owners of private companies going public (venture capitalists and entrepreneurs) are much less likely to start the expensive underwriting process when times are tough.

Things haven’t been helped by the shakeup in the investment banking world. Since the financial meltdown started, some of the biggest underwriters (the firms that help take private companies public) have closed up shop – Lehman Brothers and Bear Stearns among them.

A Turnaround for the IPO Market?

Despite all of the barriers to new public companies right now, it looks like the IPO market is starting to catch some momentum once again. While Solarwinds may be the first venture-backed IPO in three quarters, it’s far from being the first IPO in 2009.

Since January, six large IPOs that have taken place in U.S. markets. Of those six, four have gone public in the last five weeks… That’s a pretty substantial increase in tempo.

And while other economic factors send mixed messages to investors on a daily basis, the warming up of the IPO market is one signal that’s decidedly bullish.

Small-Caps Lead the IPO Rally

Of the six new issues that have hit the markets this year, every single one has been a small cap. The names include highly anticipated offerings like language software developer Rosetta Stone (NYSE: RST), satellite imaging firm Digital Globe (NYSE: DGI), and for-profit college company Bridgepoint Education (NYSE: BPI).

Overall, these IPOs are a big win for small-cap investors. Not only do they provide exciting opportunities to invest in companies that have until now been private, they also suggest that the markets are receptive to a continuation of the rally that took a break last week.

Cheers,
Jonas Elmerraji

Source: Selling the Solarwinds IPO

U.S. banks – under government order to raise capital as a result of the recently completed bank stress tests, and desperate to shed the onerous shackles of the U.S. Treasury Department’s Troubled Assets Relief Program (TARP) – have been announcing billions in secondary stock offerings in recent days, and experts say many more such deals can be expected.

Anadarko Petroleum Corp. (NYSE: APC), Bank of America Corp. (NYSE: BAC) and Ford Motor Co. (NYSE: F) yesterday (Tuesday) became the latest U.S. companies to pursue new sources of capital, announcing deals that involved offerings of stock or debt, or outright asset sales.

Those announcements came just one day after four of the largest U.S. banks – BB&T Corp. (NYSE: BBT), Capital One Financial Corp. (NYSE: COF), U.S. Bancorp (NYSE: USB) and KeyCorp (NYSE: KEY) – announced plans to raise a combined $6.5 billion through stock offerings. At least some of the money raised will be used to repay the TARP money the federal government injected into troubled U.S. banks.

“All the deal activity sends a clear signal – investors are willing to take more risk,” says Louis Basenese, a longtime expert on the IPO market and editor of The Takeover Trader and White Cap Report newsletters. “And it’s already trickling down into the IPO space. In the next two weeks, four deals are slated, doubling the total volume for 2009.”

When asked if all these deals could end up soaking up all the capital that’s still sitting on the sidelines – blunting, as a result, the rally that’s had stocks surging over the past two months – Basenese said there’s no reason for that to be a concern.

“With $8 trillion-plus on the sidelines, we’ve still got a ways to go before the capital is gone,” Basenese said.
In fact, we may well be just getting started, he says.

“During slowdowns, the IPO space is as lonely as a geek on prom night. But right now, our geek might be getting lucky. Along with the market rally and strong appetite for secondary offerings, we’re seeing IPOs hit the market again,” Basenese said. “This week we get Digital Globe. Next week, OpenTable and SolarWinds are slated to debut. And there are over 100 more in the pipeline to fuel a sustained recovery.”

The Latest Deals

Yesterday’s announcements involved a carmaker, an energy company and a top U.S. bank.

Anadarko, an independent oil-and-gas exploration and production company based in Woodlands, Tex., said yesterday that it priced a public offering of 30 million shares at $45.50 each. Underwriters have an option to buy up to 4.5 million additional shares of the company’s common stock through the offering, which is expected to close Friday.

The company’s shares were down about 6% and listed at $45.70 in pre-market trading yesterday morning, FoxBusiness.com reported.

Bank of America, ordered to find $33.9 billion in new capital as a result of the recent bank stress tests, has finally sold about $7.3 billion worth of its shares in China Construction Bank Corp., Reuters and Bloomberg News both reported.

BofA sold 13.5 billion shares, or 6% of CCB, to investors including Hopu Investment Management Co. and Singapore sovereign wealth fund Temasek Holdings Pte. The sale cuts Bank of America’s stake in CCB to 10.6%.

Hopu Investment was founded in 2007 by Fang Fenglei, Goldman Sachs Group Inc.’s (NYSE: GS) China partner. Hopu and Temasek have collaborated before; in late April, the two announced plans to invest $300 million in a Mongolian iron-ore mine. It was Hopu’s first deal since being launched as a private equity firm, Bloomberg News reported.

Bank of America’s sale of part of its CCB stake wasn’t news to Money Morning readers. In a story published in mid-January – “The Global Financial Crisis Will Cost Western Banks a Share of Future China Profits” – Money Morning reported that BofA was going to have to sell some of its stake in that key China bank. Indeed, the report detailed how banks in the United States and Europe would have to divest their interests in China’s promising banking market in order to close capital deficits created by the global financial crisis. The story was part of Money Morning’s ongoing investigation of the U.S. banking bailouts.

On Friday, BofA filed with the U.S. Securities and Exchange Commission (SEC) to sell as much as 1.25 billion shares of common stock, a move that would raise as much as $11 billion (given a proposed maximum offering price of $8.79 per share).

BofA said it will use the net proceeds from the offering for general corporate purposes. Bank of America Securities LLC and Merrill Lynch & Co. (NYSE: SQD) were listed as the underwriters for the stock offering.

Bank of America is also looking at still more asset sales to raise the rest of the required capital. Last Thursday the bank said it’s looking to end a loss-sharing agreement with the federal government on $118 billion of troubled assets, calling the agreement unnecessary – and too expensive.

Ford announced plans to sell 300 million common shares, and said it would use the proceeds from the offering for “general corporate purposes,” and to make a contribution to a fund that pays for healthcare for its retirees.

Total shares outstanding will increase to 3.102 billion – or to 3.148 billion if underwriter’s option for an additional 45 million shares is exercised.

Citigroup Inc. (NYSE: C), Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM) and Morgan Stanley (NYSE: MS) are acting as joint managers for the stock offering.

Ford’s shares closed yesterday at $5.01, down $1.07, or 17.6%, from Monday.

According to an SEC filing, a settlement with various unions calls for the initial three payments to be made on Dec. 31, 2009, June 30, 2010 and June 30, 2011. At each date, as much as $610 million of the amounts payable could be satisfied by the delivery of Ford common stock, valued at fixed prices of $2.00, $2.10 and $2.20 per share, respectively, the filing stated.

Ford intends to use a portion of the proceeds of this offering to fund all or a portion of the payments to the settlement fund – in lieu of delivering shares on those payment dates, according to a media report by 123Jump.com.

Ford Chief Executive Alan R. Mulally took advantage of the stock-offering announcement to say that Ford’s management and employees are making “strong progress on our transformation plan – gaining retail market share with great new products, improving quality, reducing costs and positioning Ford for a return to profitability.”

Ford also said that it’s unlikely the company will pay any dividend in the foreseeable future. Ford last paid dividends in the third quarter of 2006.

As Ford Sells Shares, So Do GM’s Top Execs

Interestingly, Ford is trying to sell shares to investors just as a group of top General Motors Corp. (NYSE: GM) executives – including GM Vice Chairman Robert A. “Bob” Lutz – have sold what was left of their personal stakes, according to several SEC filings on Monday. The stock sales by GM executives were reported by MarketWatch.com.

“Our shareholders are obviously facing some pretty severe dilution if the bond exchange goes through or we end up in bankruptcy,” GM spokesperson Julie Gibson told MarketWatch. “Either way, no matter the outcome, we’ll essentially be issuing new stock.”

She acknowledged to MarketWatch that the executives took advantage of a trading window to sell their shares while there’s still some value “like most reasonable people would do.”

GM’s executives sold their shares just as the company is trying to rid itself of $27 billion in debt by persuading thousands of creditors to exchange their bonds for 10% in GM stock.

According to the MarketWatch report, the SEC filings say that Lutz was joined by fellow Vice Chairman Thomas G. Stephens, Ralph J. Szygenda, Troy A. Clarke, Gary L. Cowger and Carl-Peter Forster. All together, the six sold nearly 205,000 shares between Friday and Monday, fetching between $1.45 and $1.61 a share.

GM’s shares closed yesterday at $1.15 each, or 20.14%.

It is worth noting that Money Morning Contributing Editor Martin Hutchinson wrote this week that there’s a chasm of difference between the prospects of GM and Chrysler LLC – the two foundering members of Detroit’s “Big Three” – and Ford, which Hutchinson says may actually be worth investing in.

If the market shakes out as Hutchinson expects, Ford could emerge as only real winner among the U.S. automakers.

Under such a scenario, “Ford will pick up market share from GM and Chrysler, even if domestic brands overall continue to see their market share ebb,” Hutchinson wrote. “That will reduce Ford’s losses, and when the automobile market does rebound, the company that created the original automobile assembly line will move to a position of substantial profitability. For the first time since Henry Ford kept the Model T in production too long in the 1920s, Ford may become the dominant U.S.-controlled automobile manufacturer.”

As the secondary-offering market heats up, and the recession, Basenese, the stock-offering expert, says investors need to focus on these investment opportunities – and especially on those that emanate from the expected escalation in IPOs.

“History suggests IPOs are the place to invest coming out of a slump,” he said. “For proof, all we need to do is go back to the last ’severe’ recession on record, from 1973 to 1975. As we exited, IPOs turned in impressive numbers, with first day gains jumping to 40% and three-year returns climbing to more than 150%, easily outpacing the Standard & Poor’s 500.”

Source: Big Surge in Secondary Stock Offerings Will Lead to a Major Uptick in IPO Profit Plays

For just a few bucks each month, I have access to daily current reports, water temperature charts and some pretty crazy satellite maps. If the technology is loved by the sportfishing industry, image what the defense and oil explorations sectors think.

The reason I mention Digital Globe is the company is about to go public. In just the fifth American IPO this year, the Colorado-based company will look to raise $250 million during its debut on May 14. The firm expects to get between $16 and $18 for its 14.7 million shares.

A successful IPO will not only be a boost for Digital Globe and its operation of two (soon to be three) high-resolution satellites, but also for its publicly traded competitor GeoEye (NASDAQ:GEOY). Shares of the company are surging today as investors begin speculating about the sector’s hype potential created by an IPO.

Keep an eye on the spies

Digital Globe’s public debut will be worth watching. I am almost positive you have already seen the company’s products. Log into Google (NASDAQ:GOOG) Earth or Microsoft’s (NASDAQ:MSFT) Visual Earth program and you will get a glimpse at the company’s capability.

But the firm’s satellite capabilities go far behind what is basically an Internet novelty. Nearly half of the company’s revenues are received through government accounts, chiefly from the National Geospatial-Intelligence Agency, which divvies the images to other government agencies.

Private sales account for the other half of the company’s revenue stream. They will likely be the focus of growth initiatives as defense-sector spending is questionable and unpredictable over the next four, maybe eight years. Companies like oil explorers, utilities, miners, emergency planners, farmers and of course, anglers can benefit from Digital Globe’s product lineup.

This is a dicey time to be entering the IPO market, but success is achievable. Just ask Rosetta Stone (NYSE:RST), which hit Wall Street on April 16 and ended its first day of trading with a 40% surge in share price. It was the strongest initial run in over a year.

There is a good chance Digital Globe and its intriguing product lineup will challenge Rosetta for its crown.

There are three ways to play the situation. Grab shares of GeoEye on dips next week hoping they will tag along on the ride. Or hold onto your money and invest in Digital Globe on May 14.

As an options trader, I like the idea of buying moderate-term call options on GeoEye, say the company’s June 25 calls (QZYFE). If the industry takes off on speculation of a strong IPO, these options will be selling for a hefty premium.

Just watch how you spend your profits. Big Brother may be watching.

Source: Profit From A Satellite IPO

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The Fourth Branch of Power: How the Fed Is Set to Become More Powerful Than the White House

This just in: It’s a good thing the Fed is a highly responsible entity, instead of some quasi-private institution run by unelected officials with plenty of back-room connections and no true accountability to the public. Oh, wait. Get the scoop on the most sweeping financial changes since the Great Depression.

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845702/5825/
Chart of the Day: Time to Buy Orbitz?

Diligent Investor revisits a beaten-up IPO issue that could be set to fly once again.

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845703/5801/

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But This Discount Retailer…at a Discount

Is the rally for real? It’s hard to tell just yet… When times are tough, a particular type of store tends to do better than the rest. Ann Sosnowski has the scoop: Her readers have already scored 13% gains in one week with this recession-proof pick.

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845704/5832/

Chart of the Day: Heads You Win…Tails You Don’t Lose

Find out more about an innovative way to capture the upside in precious metals and global currencies — without the downside risk.

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845705/5833/

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Cash Goes Three for Three

McDash is back and ringing in April with new gains and new tricks up his sleeve. The IPO market is heating up, too; just check your “syndicate calendar.” On top of that, Cash claims, “There’s nothing wrong with the housing market.” Is the guy crazy? Or just crazy like a fox?

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845706/5828/
Chart of the Day: Tankan in the Tank

Adam Lass of Taipan Trader sees woe in the land of the Rising Sun. Japan is hurting alongside the United States, but Adam knows a way to gain from the gloom.

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845707/5818/

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Investing in Gold: A Poker Player’s Perspective

If you’re willing to ante up, you could find opportunity in adversity. The Fed may have won a battle, but it isn’t clear how they’re going to win the war. As far as gold goes, this simple truth could be setting up a “monster pot” opportunity for investors.

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845708/5834/
Chart of the Day: Follow the Money (to Russia)

Andrew Mickey, editor-in-chief of BreakAway Investor, breaks down the numbers for this solidly booming market.

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845709/5829/

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Death Cross Trader: First-Quarter Update

Washington has a message for Bear Stearns shareholders: “Drop dead.” Will the bullish market climate hold? If things fall apart, Ann Sosnowski won’t mind. Her Death Cross Trader readers are making money hand over fist in this volatile market.

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845710/5830/

Chart of the Day: Rising Rice Stokes Agflation Agitation

When Christian DeHaemer ponders a grain of rice, he sees more than just a global food staple. He sees agflation. Fortunately, Material Profits have a way to benefit from this worrisome trend.

Read the full article here.
http://www1.youreletters.com/t/1463412/29544639/845711/5831/

CASH: Indeed. You weren’t surprised again, though, were you? After all, if I may refer you to the notes of our conversation last week…

JL: No time for false modesty; that’s one of the things I like about you. Speaking of last week, you mentioned a few names as we closed out the conversation. The first was Blackstone (BX:NYSE).

CASH: Right. Looks like BX tripped our $17 trigger yesterday. So Blackstone could be off to the races.

JL: Yep. And how about those solar picks, yowza! In my chicken-scratch notes, I see you took a bullish turn on LDK Solar (LDK:NYSE) and JA Solar (JASO:Nasdaq) last time we talked. Well, LDK solar was up 26% and JA solar was up 32% — in a week! I know you’re nicely connected, but is there something more I should know about where you get your information?

CASH: Oh, ye of little faith. I could tell you more, but then I’d –

JL: Never mind, I don’t want to know.

CASH: Heh. There’s not so much to know anyway. It’s all part of reading the markets and getting a feel for supply and demand. I can’t figure out everything, but I’m pretty decent at nailing down my little universe of recently issued stocks.

JL: Ah yes, that reminds me of another prediction. Last week you expressed confidence that the IPO market would pick up. I didn’t see any IPO’s price last week. So is that call on hold, or revised, or what?

CASH: I’m assuming you haven’t looked at the calendar yet.

JL: Hmm. I know it’s the first week of April. What are you getting at?

CASH: Sorry. I was being a little bit tricky there. In IPO land, referring to the “calendar” is usually trader-speak for the calendar of new issues. Or the “syndicate calendar” as some call it.

JL: Ah, right. And the syndicate calendar has some good stuff on it?

CASH: You bet. There are now four IPOs lined up for the week of April 7. See, it’s not like an IPO can launch at the drop of a hat. A few things have to happen first. For starters, it takes time for the underwriters to make their sales pitch. They have to parade the company in front of lots of buyers — do that whole dog and pony show — in order to drum up institutional demand.

Visa’s $18 Billion Market Will Launch IPO Returns to New Highs

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Read about the Secret IPO Fund here and find out how it made millionaires out of investors with MasterCard’s IPO.

JL: So there’s more to it than just a handful of phone calls and filing paperwork.

CASH: Most definitely. These deals have a ton of fanfare to get potential buyers excited. Sometimes it works and sometimes it doesn’t… but with all the chardonnay lunches and steak dinners, no one seems to mind the process. Besides, don’t you remember the other half of my prediction?

JL: You mean the part about secondaries picking up? Where an already-public company issues new shares?

CASH: Correct. It could be that, or it might be a group of large shareholders issuing their stock in what’s called a “block trade.” These take a bit less time to line up because the stock is already trading, and underwriters can usually go to clients who already own a position in the name. Usually the stock comes overnight — similar to an IPO transaction — and is offered at a discount to the previous day’s close.

JL: So when the deal is a “block trade,” the large holders are essentially willing to sell at a discount in order to move a large volume of shares. They get the chance to liquidate a big chunk of their holdings without relying too much on the daily trading volume.

CASH: You got it. But liquidity is still very important. These deals can only be brought to market when enough liquidity exists for the underwriters to find buyers. And for what it’s worth, there were six of those deals this past week.

JL: So that’s a positive liquidity sign. What kind of companies are we talking about? How did they go?

CASH: There were two financial deals that met with a decent amount of resistance. The market still isn’t quite ready for the bond insurers or intermediate finance companies — though maybe that’s changing now. There were also two energy companies that sold shares and traded very well. Oil is a hot commodity, you know.

JL: You don’t say!

CASH: Heh. Yeah, can you believe it?

JL: That’s only four deals, wise guy. What about the other two?

CASH: The fifth was a small REIT (real estate investment trust) that did relatively well. But the sixth is much more exciting. That one was Neutral Tandem, a company that offers niche technology to telephone carriers. The company is profitable and growing nicely. The sellers there were private investors liquidating part of their position. The stock is trading roughly flat from the offering, but it’s encouraging to see how readily the market soaked up the supply. I have a feeling we’ll be coming back to Neutral Tandem a few weeks down the road.

JL: Sounds good. So, given all that evidence, I guess your IPO call was money too, huh? Chalk up another win for the mighty Cash McDash?

CASH: What can I say? When it works, it works. Know what I mean?

JL: Since you’re on such a hot streak, how about throwing out a fresh name before we wrap this up.

CASH: Sure. I’ve actually had my eye on a specific homebuilder.

JL: A homebuilder, eh? Rooting around in the trash heap again? I know the builders have bounced, but it’s probably a waste of breath for me to go on about deserted subdivisions, massive supply overhang, adjustable mortgage rates ticking up, consumer credit getting tight…

CASH: I tell you what, though. From my point of view, there’s nothing wrong with the housing market.

JL: Come again?

CASH: There is nothing wrong with the housing market.

JL: No way, pal. I’m not falling for it this time. There has to be a twist in here somewhere…

CASH: Okay, okay, you caught me. I’m not talking about the U.S. market. I’m talking about Brazil. Specifically, I’m looking at a company called Gafisa — symbol GFA on the NYSE.

JL: Ga-who? How do you pronounce that again?

CASH: I just call ‘em GFA. They’re a Brazilian homebuilder structuring entire new communities in Brazil. As you know, Brazil is one of the most dynamic countries around these days. As the country capitalizes on its new wealth selling agricultural goods to the world, the Brazilian population is increasingly able to afford the kind of things that we take for granted. Stuff like better food, better clothing, and yes, even housing.

JL: And they’ve got a lot of room to grow down there.

CASH: No doubt. If the Brazilian housing market qualifies as a “bubble,” I say it’s one that could keep inflating for a decade. It also doesn’t hurt that GFA gets most of its revenues in Brazilian currency rather than dollars, translating to larger gains for investors as the dollar weakens.

JL: No complaints there. Is there a spot you find particularly attractive on this one?

CASH: Well, given the market’s renewed strength, I’ll go out on a limb here and say the time is about right to start building a position in this name. I would try to pick up stock below the $38 to $40 range to keep costs low and reduce risk. Fundamentally, GFA is supposed to more than double earnings this year, to $2.93, and is then expected to ramp that up to $4.83 in 2009. With the stock in the mid-$30s, the valuation is very attractive.

JL: Excellent. We’re going to have to set up a way to keep track of all these ideas.

CASH: Sure. Profit is the best way I know of to keep score… If I’m not helping my investors make money, they don’t stay investors very long. So if these conversations aren’t helping our readers make money, I’d imagine it’s the same deal. There are plenty of ups and downs in this business, but we’ve all got to profit if it’s gonna be worth while.

JL: Very true. We’ll keep brainstorming. Talk to you next week.