Thanks to vacationing Wall Streeters, the third quarter is always a light one for new stocks. Much of August goes dormant while the big money heads to the Hamptons, and the first half of September sees the whole IPO machine slowly churn back to life as companies go on their roadshows.
For instance, the third quarter saw 59 new stocks hit the market. Moreover, the average return on these IPOs was some 18%.
The most notable deals … well, you wouldn’t have to guess much to know what the highlight of the past quarter was. Alibaba (BABA) stole the show with the biggest IPO of all time.
So read on as we take a look at the Alibaba IPO, as well as three more of the best new stocks from Q3.
Best New Stocks of Q3: Alibaba (BABA)
Date: Sept. 18
Alibaba (BABA) had to make the list. It had to lead the list.
That’s one of the privileges that come with being the biggest IPO ever.
Founded in 1999, Alibaba has turned into the dominant e-commerce operator in China, with more transaction volume than eBay (EBAY) and Amazon.com (AMZN) combined. While there was some apprehension about the IPO — especially in light of the difficulties of the Facebook (FB) mega-deal a couple years ago — the transaction was smooth.
BABA might be pressured in the coming months. After all, rival Tencent (TCEHY) has been investing heavily in e-commerce and has been leveraging its hugely popular messaging app, WeChat. The company also has its own mobile payments system and took a 15% stake in JD.com (JD), China’s second-largest e-commerce operator. Baidu (BIDU) also is taking aim at the market, and could leverage its massive online/mobile search footprint to make a dent in the space.
Still, Alibaba’s business of making money from transactions and advertising results in juicy margins. Consider that for the year ended March 31, 2014, BABA generated profits of $3.7 billion on revenues of $8.5 billion.
And the IPO has made Jack Ma — Alibaba Chairman and co-founder — China’s wealthiest man at a net worth of $20 billion.
Not bad for a former English teacher who once made just $20 a month.
Best New Stocks – El Pollo Loco (LOCO)
Date: July 24
Some thought that idea was … well, loco, but so far the bulls are winning the argument in a convincing way, with LOCO stock more than doubling since coming public in July.
El Pollo Loco is a fast-casual operator with a focus on low-priced Tex-Mex offerings that spans some 400 locations, mostly in California, Texas and Arizona.
LOCO has been growing at a nice pace, with last quarter’s revenues up 6% year-over-year, and earnings shooting through the roof, up 1,387% to $6.1 million, or 21 cents per share. (Adjusted earnings of 16 cents per share beat the Street as well.)
Still, El Pollo Loco now has a crazy-high valuation. LOCO stock currently is trading at 59 times next year’s earnings, compared to 38X for CMG and 32X for Pollo Tropical/Taco Cabana parent Fiesta Restaurant Group (FRGI).
Best New Stocks – Mobileye (MBLY)
Date: July 31
Well, at least as far as exaggerated returns are concerned, it’s heading in the right direction.
Founded in the late 1990s, Mobileye is one of the top players in the market for Advanced Driver Assistance Systems — a technology based on cheap sensors and cameras that helps drivers avoid collisions and keeps them from running through traffic signals.
Growth has been robust, with revenues soaring from $19.2 million three years ago to $81.2 million in its most recent fiscal year. The company even managed to post a profit of $19.9 million last year.
Moreover, Mobileye has only scratched the opportunity’s surface. The global market for auto sales is more than 80 million per year, but Mobileye has sold just 3.3 million of its systems since 2007.
So the next Tesla? They’re slightly different things — but both could be making a lot of investors happy thanks to new automotive technology.
Best New Stocks – ReWalk Robotics (RWLK)
Date: Sept. 11
Dr. Amit Goffer is a quadriplegic – and he did something about it. Over ten years ago, he founded ReWalk Robotics (RWLK) to create light, battery-powered wearable exoskeletons that allow wheelchair-bound people to walk and, in some cases, to even walk up stairs. The technology is amazing, using a myriad of sensors and algorithms that activate on only slight movements in a person’s center of gravity.
ReWalk is still in the early stages of commercialization (for the first half of this year, revenues came to $945,000 and the net loss was $59.4 million). But the opportunity for growth is large. According to a report from NSCISC, there are roughly 273,000 people in the US with spinal cord injuries and there are about 12,000 new cases a year. As should be no surprise, about 42,000 of the total are veterans.
But ReWalk is looking to expand its system into other markets. For example, it could prove useful for helping those who suffer from multiple sclerosis as well as those that have had strokes.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.