IPO Market 2013: What's Next After the White-Hot Start

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The IPO market has had a strong first half in 2013, in some cases delivering double-digit gains for those who have ventured into IPO investing.

As the stock market has staged an impressive rally, investor demand to get into the IPO market is returning to pre-credit-crisis levels. The second quarter was actually the most active three-month period for IPOs in six years.

So far in 2013, we have seen 92 deals. The average gain for initial buyers is around 20%.

The pace seems to be picking up, as the first quarter saw 31 deals raise about $7.6 billion, and the second quarter had 61 offerings raise more than $13 billion.

Financial firms, including real estate investment trusts (REITs), have been the most active industry, with 35 offerings. Healthcare companies are right behind, closing in on 34 deals so far this year.

Some analysts think we could see more than 200 deals by the end of the year.

That means more opportunity for IPO investing for double-digit gains...here's where to look.

IPO Market 2013 Outperformers

Technology IPOs have had a pretty strong performance this year, with faster-growing tech companies among the top performers:

  • The top-returning IPO of the year has been ExOne Co. (Nasdaq: XONE). The 3D printing company has seen its shares rise by 27% since its debut back in February.
  • Then there's Marketo Inc. (Nasdaq: MKTO), which provides a cloud-based marketing software platform that enables organizations to engage in modern relationship marketing in the United States. The stock has risen by more than 170% since its IPO back in May.
  • Textura Corp. (NYSE: TXTR) provides collaboration and productivity software tools for the construction industry, and its stock is higher by 120% since its debut offering in June.

Food-related stocks have also had a spectacular year in the IPO market in 2013:

  • Noodles & Co. (Nasdaq: NDLS) has restaurants that specialize in noodle and pasta dishes, soups, salads, and sandwiches. Investors like the stock as much as customers like the noodles, with the stock rising more than 100% since its June IPO.
  • Sprouts Farmers Market Inc. (Nasdaq: SFM) has 160 stores that sell natural and organic foods. The stock has doubled since the first week of August.
  • Fairway Group Holdings Corp. (Nasdaq: FWM), a small New York area grocery chain, has also been well received by investors, with a gain of more than 70% since April.

There also has been a steady stream of housing and real estate related stocks, as companies look to exploit the improving housing markets. However, most of them have fared poorly so far, especially REITs in the single-family home market.

Ellington Residential Mortgage REIT (NYSE: EARN), Trade Street Residential Inc. (Nasdaq: TSRE), and American Residential Properties Inc. (NYSE: ARPI) have all posted double-digit losses since their initial offerings.

Aviv REIT Inc. (NYSE: AVIV) is the best performing REIT this year, with a gain of 15% since becoming public back in March. It specializes in owning post-acute and long-term care skilled nursing facilities and other healthcare properties.

The Private Equity IPO Market

One source of concern for investors in general, and IPO investors specifically, is the increase in the number of private equity-related offerings.

After averaging 10 private equity-backed offerings a quarter for the past year, we saw 24 in the second quarter, and several more are on the IPO calendar for the next few weeks.

Several private equity executives have been quoted as saying conditions were ideal for selling. Leon Black of Apollo told investors at a recent conference that his firm was selling everything that's not nailed down.

If these firms are selling, investors have to question whether they should be buying deals that are basically locking in profits for PE firms.

But with caution, investors can find good deals for the rest of the 2013 IPO market...

IPO Investing Ahead

The IPO calendar is fairly empty for the rest of August, but there are some large deals scheduled for the fall...

Hilton Hotels is a private equity-backed deal that is in the process of putting together an initial offering, and Extended Stay America has already registered its offering. Real estate brokerage ReMax has filed for a $100 million offering as well.

There are several REITs and oil and gas master limited partnerships designed to appeal to income-seeking investors scheduled for the next month or two as well. The most closely watched possible IPO is Twitter, with many analysts expecting the company to file its initial public offering before the end of the year.

Now, so you can get a piece of the action, here are four rules for IPO investing - the IPO market isn't just for the rich anymore...