IPO Investing:  Patience Is A Virtue…

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I hope you didn’t buy LNKD on opening day…

If you did, you’re feeling some pain in your portfolio right about now.

LNKD is currently trading around $70… down 15% from its opening day price of $83 on May 19th.

Now some may say a 15% drop isn’t a huge deal.  But take a look at a chart of LNKD…


As you can see, many unsuspecting investors bought the stock at over $120 on the first day of trading.  In that case, they’re sitting on losses of 40%... or $50 per share… ouch.

First day Pandora investors are probably feeling a little nervous too…

The stock outperformed on its first day of trading Wednesday.  CNBC commentators were quick to point out Pandora was a “bright spot” on an otherwise gloomy trading day.

But it didn’t take long before reality set in…

Now this overpriced pile of “you know what” is dropping like a stone.

In fact, in just two days of trading, shares are already falling below the $16 IPO price.  But even worse, shares are down 50% from where unsuspecting buyers scooped them up for $25 a pop.

Take a look at this intraday chart…


If you’re holding Pandora, I recommend you sell it… pronto.

Why?

I think analysts are going to start downgrading Pandora like crazy.  There’s no reason for an unprofitable company with a weak business plan to trade at such lofty levels.

In fact, one analyst has already downgraded the stock… and slapped a $5.50 price target on it.

Is there a lesson to learn here?

Buying an IPO on opening day is a bad idea.  I don’t care how exciting a company is.  There’s just too much speculation and hype on the first day of trading.

Early investors are emotional and highly likely to get burned.

Of course, there are always a few rare exceptions.  But more times than not, blindly buying IPOs on opening day will quickly decimate your portfolio.

Personally, I don’t know why investors buy into IPO hype.  Maybe it’s the constant barrage of “news” on the business channels.  Or maybe it’s the lure of buying the next “big thing” before anybody else.

Instead of jumping the gun…

Let IPOs trade for a couple weeks, if not more.

You want IPOs to establish a bit of trading history.  Find out at what price levels the stock gets strong buying interest.  And use that level as a point of reference when you finally do buy the stock.

Next time you feel like buying an IPO, try this technique.  I’ll bet you get a better entry point.  And you’ll have a much better chance of making money on the trade.

•  Great Panther Silver (GPL) was upgraded by Morningstar this week. They now have a strong buy rating on the stock.  Apparently they see silver prices staying at these levels, or moving higher.  I would have to agree.

•  Petroleum Development (PETD) was upgraded to buy from under-perform at JP Morgan.  Small and midcap oil producers are showing good valuations at current prices.

•  Olmstead moved AngioDynamics (ANGO) to a sell this week.  The medical device maker is falling through the floor on the news.

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