IPOs – Of Real Companies With Real Profits – Follow Market’s Rise

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It has been a great year for the U.S. stock market so far, notwithstanding a few hiccups here and there, with the broad-based S&P 500 up 4% already. And that has set the stage for a range of appealing initial public offerings, at least some of which fall squarely into some solid investment themes that investors would be wise to ponder.

This week’s big news was the launch – or rather, re-launch – of the streamlined Boise Cascade (BCC), which soared 24.5% in its first day of trading. LBO firm Madison Dearborn Partners couldn’t have timed the company’s return to the public markets better, as investor thirst for any company that can be seen as a play on the still-robust housing market recovery appears to be unquenchable. Underwriters boosted the target price twice during the marketing, and even then priced it above expectations – a festive return to the public markets for Boise Cascade, which was purchased by OfficeMax (OMX) in 2003 and then sold to Madison Dearborn as part of a broader transaction a year later. (OfficeMax still owns about 20% of the company.) The post-IPO rise can be seen in a stock chart.

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The other intriguing IPO is the spinoff of Pfizer’s animal health company, Zoetis (ZTS), which soared 20% in its first day of trading. Last year, Zoetis saw sales climb 17% and investors are betting that the company will fare even better now that it’s off the leash and on its own. It also will benefit from being the purest play on a growing market: humans love their animal companions and are willing to fork out big bucks to keep them healthy and happy. (If you’re in doubt, just reflect on the fact that a woman in Yorkshire, England, remortgaged her home in order to offer a 10,000-pound reward for the safe return of her dog, while a Toronto man said he’d be willing to fork over C$15,000 in ransom for his own pooch.)

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Look for both transactions to clear the way for more IPOs in both the building-related and healthcare arenas. Already, TRI Pointe (TPH), a homebuilder, has completed its IPO, and another, Taylor Morrison, is awaiting its turn.

The boom in IPO activity could also be good news for Jefferies Group (JEF). After the financial crisis of 2008, Jefferies was left as the largest surviving pure investment bank, as Goldman Sachs (GS) and others converted into banking institutions. Rumors that Jefferies was on the brink of collapse thanks to bad bets on European sovereign debt were put to rest last year, and the company has gone on to slash its leverage and improve its liquidity. (It is on the verge of being acquired by its major shareholder, Leucadia (LUK), a conglomerate.) To the extent that the Zoetis deal – of which Jefferies was an underwriter – clears the path for more healthcare transactions, look for Jefferies to be among the biggest beneficiaries, thanks to its prescient decision to poach star healthcare banker Ben Lorello from UBS in the wake of the crisis in 2009. Lorello, known for his skill and his ability to woo investment-banking clients, now heads the firm’s global capital markets operations – and Jefferies dominates the league tables in healthcare deals.

Forget about Twitter. Whether or not the social networking company opts to take to the public markets and once again test investors’ appetite for this kind of business model, it seems clear that 2013 will bring with it plenty of opportunity to invest in established companies with solid track records.

Suzanne McGee, a contributing editor at YCharts, spent nearly 14 years as a reporter at the Wall Street Journal, in Toronto, New York and London. She is also a columnist for The Fiscal Times, and author of "Chasing Goldman Sachs", named one of the best non-fiction books of 2010 by the Washington Post. She can be reached at editor@ycharts.com.


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