Ray of Sunshine Emerges In Sagging IPO Market

Alternative Energy Bolsters Hopes For New Offerings
By LYNN COWANJuly 7, 2008;

Even though this summer is expected to be a slow season for new stock offerings, market watchers are already daydreaming about the kinds of deals they would like to see in the wake of Energy Recovery Inc.'s successful debut last week.
The 16% pop by the initial public offering of Energy Recovery, which makes energy-saving devices for water-desalination plants, ended a two-month streak of eight IPOs that didn't gain on their first days of trading.
Noble Environmental Power
An IPO to watch? Wind-farm firm Noble Environmental Power.
While one strong IPO doesn't a trend make, it does have analysts considering which stocks could weather uncertain market conditions like Energy Recovery did -- it rose on the same day the Dow Jones Industrial Average hit bear-market territory.
"Alternative energy plays will continue to attract the attention of investors," says Ben Holmes, publisher of research site Morningnotes.com. "Energy Recovery could be the torchrunner for this industry."
There are just a few alternative-energy IPOs in the U.S. pipeline, according to data from Dealogic, but Mr. Holmes and others said that Energy Recovery could spur more "green" companies to go public.
Linda Killian, portfolio manager of Renaissance Capital LLC's IPO Plus Aftermarket Fund, said deals to watch include wind-farm company Noble Environmental Power Inc.; GT Solar International Inc., which makes equipment to produce the raw materials for solar cells; and Global Energy Inc., which is developing synthetic-gas facilities. However, she warns that investors shouldn't be expecting the kind of buzz that surrounded the largest IPO this year -- Visa Inc.
"In terms of an all-weather deal that would also be well known to people, there's nothing on the calendar like another Visa," says Ms. Killian.
Outside the alternative-energy market, satellite-imagery company DigitalGlobe Inc., website-hosting firm Rackspace Inc. and online college Grand Canyon Education Inc. look promising, says Scott Sweet, managing director of research firm IPOBoutique.com. But that batch will require a better stock market to debut, he says.
"Once the market stabilizes and we don't have these wild gyrations on a daily basis, there's a strong pipeline that could open up in the mid-third to fourth quarter of this year," says Mr. Sweet.
Investment bankers expect the IPO market to be slow at least through Labor Day, but think offerings that share some of the same traits as Energy Recovery will work.
"We need to focus on the basics of what IPOs are about, which is real growth with a strong competitive advantage, as well as good management teams," says John Chirico, co-head of capital-markets origination for the Americas at Citigroup Inc., a lead manager on Energy Recovery's offering.
One offering that hasn't even filed a prospectus is creating some early interest: Russian Internet search engine Yandex, which is rumored to be considering a fall debut in the U.S.
"People are calling me about it already," says Sal Morreale, who tracks IPOs for Cantor Fitzgerald LP. "There hasn't been much to hang your hat on in this market, so this is one to watch."
There also haven't been many tech stocks from Russia, and Yandex is a market leader there, says Tom Blackwell, who heads the Moscow office of PBN Co., an emerging-markets consultant.
"With Google at the back of people's minds, and looking at potential growth in Russia in coming years -- that will be enough to push people toward it," says Mr. Blackwell.
Write to Lynn Cowan at lynn.cowan@dowjones.com