Beat and bounce in new stock offerings
Care to beebop along with Dick Clark's ``American Bandstand''? Put a little green behind the Celtics' Green Machine? Or maybe Coca-Cola's red and white wave is more to your taste. Investors shopping for new issues will find all of the above on sale this month or next. One does pay a premium for brand names. But there are plenty of less pricey, off-brand stocks available, too.
In the last two months, Norman Fosback has counted 342 offerings. ``This is the largest number of new offerings [over such a short period] in eight years.''
Underwriters have been working overtime. But abundant supplies present investors with an opportunity.
``It's a buyer's market,'' notes Mr. Fosback, editor of the New Issues newsletter in Fort Lauderdale, Fla. ``Relative to the supply, there's not an enormous amount of demand. Many offerings are reasonably priced.''
Several initial offerings have even been postponed or canceled because of the soft market. For instance, Majestic Shipping, an oil tanker subsidiary of the Loews Corporation, was postponed. Carolco Pictures, producer of Rambo movies, delayed its offering until later this month.
The weak demand is a bit odd, considering that the Dow Jones industrial average has steadily recouped its September losses. Last Friday, the Dow closed at 1,886.53, up 8.72 in five days of heavy trading - well within striking distance of all-time highs. Still, pessimism persists in some quarters.
``In the short term, we're definitely overbought. We could see a decline of 50 points or more,'' says Rao Chalasani, technical analyst at Prescott, Ball & Turben, in Cleveland. He expects a year-end rally, but ``not much more than 1,950 to 2,000 unless we get a significant correction here.''
Mr. Chalasani believes growth stocks will be the focus of attention in 1987. And the over-the-counter markets have been showing signs of revival.
Glenn Cutler, editor of Market Mania, a Pacifica, Calif., newsletter, says secondary stocks ``are creeping higher on better earnings. And for the first time in two years the tech stocks are starting to turn up, moving out of a long-term basing pattern.''
Mr. Cutler, who also publishes The Red Herring, an initial public-offering newsletter, agrees with Fosback: ``This is a good time to start looking for new issues.''
Next week, the biggest-ever offering in the United States will hit the Street. Coca-Cola will raise $1.5 billion by spinning off its bottling operations as Coca-Cola Enterprises.
Institutional buyers haven't been particularly effusive over the expected $21- to $24-a-share offering price. ``Other bottlers trade at about five times cash flow,'' notes Standard & Poor's new-issue analyst, Paul Szczygiel. ``His is going at seven to eight times cash flow.'' Still, the name recognition value may bolster buying. If you can get it, Mr. Szcyzgiel advises buying at $21 or below.
Also on the topic of behemoth offerings: Next month the biggest public offering the world has ever seen will debut. British Gas, the United Kingdom's fuel supplier, will be sold for about $9 billion. US investors will get a crack at about 26 million American Depositary Receipts, priced at $21 per ADR, which contains 10 British Gas shares. Lead underwriter is Goldman, Sachs & Co.
``It's priced at historical book value, and at a substantial discount to current book value,'' says Szczygiel. ``And it's paying at least a 6 percent dividend. They're leaving something on the table for investors.''
From Hollywood, Dick Clark Productions Inc. will be offering 1.6 million shares next month at $8 to $10. The company, according to Mr. Clark, produces ``mind candy'' entertainment shows for television. The company earned $4 million on revenues of $38 million last year. In addition to the 30-year-old ``American Bandstand'' and three weekly music series, the company will produce ``Superstars Salute Their Mothers'' and 13 other specials this year. Allen & Co. and L.F. Rothschild, Unterberg, Towbin are the underwriters.
For Celtics fans everywhere, the chance to own a piece of this perennial basketball winner will come up next month. The owners are selling 40 percent in a master limited partnership. The shares, to be traded on the New York Stock Exchange, have been priced at $19 to $21 by Smith Barney, Harris Upham. But analysts rate it as expensive and speculative.
Szczygiel says the stock ``is priced very high compared to other sports franchises.'' Still, as a devout Celtics rooter, he may pick up a few shares.
Mr. Cutler says that among lesser-known but better-value stocks he favors Allwaste Inc., a nontoxic-cleanup company that takes chemical wastes off the hands of industrial clients. The company has a proprietary vacuum-cleaning machine known as The Guzzler. Revenues in fiscal 1986 (ending August) were $13.5 million; operating profit, $4.2 million. McKinley Square/Allsopp Securities in New York is the underwriter.
Also in the cleanup genre, Szczygiel likes Dryclean USA, due out next month. The 151-store franchise ``looks cheap'' at $10 to $12 a share. ``They've had good incremental growth over the last four years, even in Texas, where they've got 46 outlets. That suggests they can do well in a cyclical downturn,'' he notes. Next year's plans call for expansion into New York, Chicago, and Washington. First Equity Corporation is the underwriter.