A first-class jockey

Another strategy analysts recommend is buying on the strength of the underwriter.

Year in and year out, deals from Goldman Sachs, Merrill Lynch, and Morgan Stanley Dean Witter perform near the top of the list.


Along the same lines, say analysts, stay away from the small underwriters or the tiny deals.

Renaissance Capital's Smith defines a small underwriter as a bank that does not do its own research and only sells to individual investors.

"Institutions may be deal hogs, but they demand research and provide credibility," she says.



A small deal is an IPO which places a company's market value (shares outstanding times offering price) at less than $50 million, Smith adds.

Funds and (gasp!) shorting


If you don't have the time to do adequate research for your own stock picking, you may want to consider putting money in a growth-oriented mutual fund that invests heavily in new issues.

Renaissance Capital has started such a fund, and you can contact Morningstar for others out there that fit the bill.


Finally, an investor may want to consider shorting a new issue, which is when an investor sells borrowed stock in hopes of buying it back at a lower price and pocketing the difference.



Shorting a hot IPO is a dangerous strategy that Smith says requires a "stomach of steel," but if timed right (wait until all the initial momentum has faded), the opportunities are large.

In order to short a stock, you'll have to find shares to borrow, which isn't easy in a new issue, and you'll need a margin account with your broker."