In a much-anticipated initial public offering (IPO), Dunkin’ Brands (NYSE/DNKN) was set to debut on the New York Stock Exchange yesterday. The company owns two big-name franchises — Dunkin’ Donuts and Baskin Robbins — and could be much sought after.
Dunkin’ Donuts, the maker of the “Boston Cream” donuts, and Baskin Robbins, the seller of 31 flavors of ice cream since 1945, appear to be a slam-dunk investment.
Some market watchers expect Dunkin’ Brands priced at $16.00 to $18.00 a share could see its subscribed price go as high as $20.00 on Tuesday night prior to trading. And with a mere 25 million in shares available, the demand for the stock could be delirious.
The debut of Dunkin’ Brands comes at a time when the market bias is positive, another reason we could see the IPO price spike on the first day of trading.
Prior to Dunkin’ Brands, we saw the strong debut of Zillow, Inc. (NASDAQ/Z), an online real estate information provider, which debuted at $57.01 on July 20 before trading up to $60.00. The stock has since steadily fallen to the current $35.00 range,
Then there were also LinkedIn Corporation (NASDAQ/LNKD), Pandora Media, Inc., (NYSE/P), and HomeAway, Inc. (NASDAQ/AWAY). Pandora is faring the worse of the three.
An area that has dried up is the Chinese IPO segment — due largely to the negative publicity of Chinese reverse mergers.
There are so many Chinese penny stocks and micro-cap stocks waiting to cross the ocean in search of U.S. dollars and exposure. The key to successful stock picking in this area is research.
But I expect that the demand for Chinese IPOs will continue to struggle in the near term, but they are waiting in the wings. For instance, in a report compiled by legal firm Pillsbury, over 30% of the 200 companies interviewed said they would prefer to seek a listing in theU.S.About 45% preferred Hong Kong orChina. Many small Chinese IPOs are speculative.
The key to trading IPOs is to wait for several weeks and watch to see if the stock settles down in a set buying range. Buying on the first day can generate some impressive returns, but it also makes you vulnerable to profit-taking, especially if you were not one of the lucky clients who did not get in at the IPO price and sell when euphoria replaced common sense on the first day of trading.
The rule of thumb is patience — follow the stock, and wait for weakness to buy. If the company is good, there will be ample opportunities to buy after the IPO debut.