Opening prices of the February IPOs were quite different than usual. Unlike other January and February IPOs since 2000, this month’s issues did not produce opening prices that were far above the offering prices. For all nine February 2008 IPOs, the average premium was only 13.3%, well below the averages for January and February IPOs in all prior years back to 2000.

Even in 2003, one of the weakest periods since 2000, the opening price was still 39% above the offering price on average. Today’s much smaller premium clearly shows just how unpopular IPOs have become in 2008. The above table also shows the percentage of “winners,” which is IPOs with opening prices higher than their offering prices. In the first two months of 2008, 44% of the IPOs were winners despite the sharp drop in the opening price premium. Until now, January and February IPOs were regarded as a sure way to make a profit, a trend that was even referred to as the “IPO myth.” But this year the winning percentage fell below 50%. This poor performance is certain to have a big impact on bookbuilding for IPOs in March and the following months.

In previous years, investors could buy a January or February IPO at the opening price regardless of the valuation and count on seeing the price climb even higher. The reason is the absence of IPOs from late December until late January every year. During January, investors buy the stocks of companies that went public late in December of the previous year. Once this buying has run its course, investors shift their attention to new IPOs, resulting in opening prices well above the offering prices.

In 2008, the subprime loan crisis caused stock prices worldwide to plummet in the middle of January. Individual investors who would normally be buying December IPO issues during January no longer had access to funds for these purchases because of the steep drop in stock prices. That left very little money for the February IPOs. Opening prices were weak as few investors had sufficient liquidity to buy IPOs at the opening.

Due to these factors, all of the February IPO stocks were undervalued based on their prices at the end of February. The average PER for the February IPOs was 11 times on February 29, the same as for the offering prices of these IPOs. To see just how inexpensive these stocks are, investors need look no farther than JASDAQ, Japan’s largest small-company stock market, where the average PER is now 14 times.

Although this point is not unique to the February 2008 IPOs, we are seeing more IPOs with high dividend yields along with the decline in stock valuations. In many cases, investors can earn a high yield by purchasing March IPOs during the current period of low valuations. Of course, investors should first closely examine companies to determine if the dividend is sustainable.

For a company with a March fiscal year end, investors will have to buy the stock no later than March 25 in order to receive the year-end dividend. If we ignore brokerage commissions and capital gains and losses, investors could receive the dividend by purchasing a March year-end stock on March 25 and selling it the next day. But investors must remember that, in theory, the price of a stock falls one day after the dividend record date by precisely enough to offset the dividend payment. In this case, investors would merely break even after receiving the dividend.

In March, 13 companies have received approval to conduct an IPO. Attracting the most attention are five companies with excellent growth potential that will be listed on TSE Mothers. Investors should pay particular attention to two of these companies: Netyear Group, which is a pioneer in the SIPS (Strategic Internet Professional Services) field; and AXEL MARK, which distributes content and Internet advertisements to cell phone users.