We're Out of HMIN, IPGP and HF

The Hot IPO Trader
Tuesday, March 6, 2007
By Louis Basenese

Email – #112

** We’re Out of HMIN, IPGP and HF

It’s no surprise that last week’s sudden selloff caused us to hit some stops.

First we got bumped out of IPG Photonics Corp. (Nasdaq: IPGP) for a small loss. This was a blessing in disguise, though, as shares are off 9% today. The company posted strong earnings (as we expected), but issued weak guidance for the first quarter.

Next, we hit our stop on our remaining shares of China-based Home Inns & Hotels Management (Nasdaq: HMIN). Again, we have plenty to be thankful for here, too.

Our sell stop allowed us to lock in a 77% gain. Without it, 20% in profits would have slipped through our fingers, as shares traded sharply lower and still haven’t recovered.

And most recently, we stopped out of HFF, Inc. (NYSE: HF) as last week’s losses carried over into Monday.

No doubt, all of the above freed up some capital. But let’s not rush to put it back to work. Here’s why…

**This Week and Next:

The markets are still working through the issues that caused last week’s downturn. Namely, weakness in China, fear over massive unwinding of Yen-carry trades and the collapse in sub-prime lenders.

Even if a company with top-notch fundamentals was debuting, I’d be hesitant to invest during such unfavorable conditions. Thankfully, we’re not faced with such a situation…

Of the five IPOs expected to price this week, only two warrant much attention – Clearwire Corp. and Xinhua Finance Media Limited.

The first because it provides access to a rapidly expanding market for wireless broadband connectivity. The second because the company is based in China. (And yes, China remains a compelling investment as one week of losses does little to derail the country’s growth trajectory.)

However, both companies are newly formed and carry considerable risks.

Clearwire is in a very capital-intensive stage of expanding its network. The company’s already burned through $1.1 billion in private funding this year and will need another $4 billion by 2013. Not to mention, at the proposed range of $23 to $25, shares represent a fair value when you balance the growth opportunities with the hefty capital requirements.

As for Xinhua, the company was just formed in 2005 and lacks the track record to prove it can thrive in a media industry rife with competition from state-owned enterprises.

With that being said, I’ll be watching each IPO closely to see how the markets respond. A warm reception will increase my comfort in recommending one of next week’s front runners – BigBand Networks or Tongjitang Chinese Medicines.

Since BigBand is slated to price on Tuesday and trade Wednesday, I’ll get you a final recommendation on Monday morning.

**Portfolio Update:

Accuray, Inc. (Nasdaq: ARAY): No new developments.

AeroVironment, Inc. (Nasdaq: AVAV): Quiet period expired on Sunday night and analysts came out with their ratings (3 neutral, 1 outperform). I’m siding with the dissenter as the uptick in defense spending bodes well for the company.  We should get a better picture of what’s in store when the company reports earnings on Thursday.

Grupo Aeroportuario (Nasdaq: OMAB): Last week’s selloff prevented shares from rallying much on a strong earnings report. In the days and weeks ahead, expect investors to refocus on the company’s fundamentals and bid up shares accordingly.

NYMEX Holdings (NYSE: NMX): Reported strong February trading volumes, up 34% year-over-year.

I’m moving all of our current positions to a hold due to their proximity to our sell stops.

**Trader’s Edge:

As I told subscribers in Hermosa Beach two weeks ago, the key to successfully trading IPOs is patience. And since it’s been three weeks since I issued a new recommendation, I think it warrants re-emphasizing now.

If you find yourself itching to reinvest your capital, hold on a little longer. Jumping on any IPO just to get some action is a surefire way to rack up some quick losses. Instead, hold out.

The pipeline is stocked with plenty of promising deals. And as longtime subscribers can attest, waiting for only the best IPOs (although difficult and sometimes boring) yields much more favorable results.

(If you have any questions, comments or successes you would like to share, feel free to drop us a line at editor@oxfordclub.com).

Good investing,

Louis Basenese

Stock
Rec
Date
Rec
Price
Current Price
Comments

Accuray (Nasdaq: ARAY)
2/13/2007
$27.50
$24.32
Hold. Sell stop is $22.50.

HFF Inc. (NYSE: HF)
2/6/2007
$19.94
Sell
Stock hit sell stop.

AeroVironment (Nasdaq: AVAV)
1/23/2007
$23.50
$20.89
Hold. Sell stop is $19.50.

IPG Photonics Corp (Nasdaq:IPGP)
12/18/2006
$24.09
Sell
Stock hit sell stop.

Grupo Aeroportuario (Nasdaq: OMAB)
11/30/2006
$21.00
$23.92
Hold. Sell stop is $21.

NYMEX Holdings (NYSE: NMX)
11/17/2006
$137.00
$123.01
Hold. Sell stop is $120.

Home Inns (Nasdaq: HMIN)
10/27/2006
$22.50
Take Profits
Stock hit sell stop.

Investor Bulletin