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Stocks & Bonds

IPOs Are Back

Now is a good time to consider initial stock offerings.

The 2008 financial crisis put initial public offerings into a seven-month coma. But IPOs started to perk up in the second quarter of 2009. Barring more shocks to the financial sector, the 2010 market could be positively robust.

Only 47 companies went public in 2009 through early November. That’s a far cry from the 200-plus offerings at the height of the last bull market, but the falloff is good for investors. “The best times to be looking at IPOs are when markets are more subdued,” says Kathy Smith, principal at Renaissance Capital.

That’s because companies must have solid businesses and offer attractively priced stocks to entice investors. Duoyuan Global Water had a June offering price of $16, which was 11 times the $1.45 per share analysts expect the company to earn in 2010. The stock was up 80% recently.

More companies are waiting in the wings. Birds Eye Foods, a frozen-food manufacturer, and NewEgg.com, an online-only electronics retailer, are among the nearly 60 companies that filed to go public in 2009 but have yet to take their shares to market.

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You have several ways to play IPOs. Online brokers, such as Charles Schwab, Fidelity and TD Ameritrade, offer select customers the opportunity to purchase IPO shares before they go public. Otherwise, you can buy a stock after its debut. Stick to companies with at least $50 million in annual sales and whose initial offering is $25 million or more. If you don’t want to gamble on individual stocks, consider First Trust U.S. IPO Index (symbol FPX). The exchange-traded fund, which holds new and recent IPO stocks, returned 36% for the year through November 6, beating Standard & Poor’s 500-stock index by 15 percentage points.