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Come on in, the water's fine! IPO rush could be biggest in 14 years

Traders work the floor of the New York Stock Exchange.
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Traders work the floor of the New York Stock Exchange.

There are 18 initial public offerings (IPOs) scheduled to price this week (including two holdovers from last week). If all 18 price, we will have 38 IPOs for June, one of the busiest months since 2000.

The big names this week are GoPro's $410 million NASDAQ IPO, scheduled to price Wednesday night for Thursday trading; ServiceMaster (which handles termite and pest control, janitorial services, home inspections, residential cleaning, furniture repair), expects to price Wednesday night for Thursday trading on the NYSE; and arts and crafts specialist Michael's $500 million NASDAQ IPO scheduled to price Thursday night for Friday's trade.

The biggest sector for the week is again biotech/pharmaceuticals, and they are all under $100 million. These names include Adeptus, Ambrx, Amphastar Pharma, KineMed, Minerva Neurosciences, GlobelImmune, and two holdovers from last week, Syndax Pharmaceuticals and Microlin Bio.

In addition, there is a healthcare software company, Imprivata.


The rest is a pretty diverse mishmash: a 3-D supplier company (Materialise), a clean energy limited partnership (NextEra Energy), a lighting company (TCP International), an international customer relation management company (Moko Social Media), a farmland company (Taggares Agriculture) and one of the largest internet companies in China, Xunlei (video, music, games).

The hot sectors this year are in healthcare, technology, energy and financial. Of the 128 IPOs that have priced this year, about a third (45) have come from the healthcare sector due to the record number of biotech offerings. Technology accounts for another 26 percent (34), while energy and financial offerings are both about 12 percent of the IPOs (all data from Renaissance Capital).

Average total returns have been healthy this year. Of the four largest industries, most have seen double digit returns from their initial price:

Healthcare up 21.8 percent

Technology up 22.0 percent

Energy up 20.9 percent

Financial up 4.9 percent

However, there are notable divergences in the performances of each industry after the first day of trading. For example, Technology IPOs have made virtually all their gains from their first day of trading, which is a discouraging sign for investors looking to get in for the longer term.

Energy IPOs, on the other hand, have enjoyed substantial gains after the first day of trading. That's likely because many are being sold (and bought) as yield plays, and are thus attracting a broader group of investors.


Where are we in the cycle?

This is shaping up to be a strong year for IPOs, one of the best in a while, but nowhere near a record. Year to date, 128 IPOs have priced, according to Renaissance Capital. At this pace, we are poised to pass last year's 222 IPOs, which raised $54 billion.

With all this activity, a lot of investors are wondering if the IPO market is in a bubble. There are several ways to address that:

1) the IPO market follows the equity market, not the other way around. New offerings have been strong because, aside from a brief period two months ago when valuations were questioned on key sectors, the stock market has been strong;

2) the number of deals is still small compared to the last IPO boom in 1999-2000. While we are on track for roughly 250 IPOs this year, almost 500 deals were priced in each of 1999 and 2000, raising $100 billion. That's twice the level we are seeing now; and

3) the "froth" as measured by average first day return, is much more modest today than in 1999 and 2000.

The average first day pop in 1999 and 2000 was 50 percent. In 2013, it was 17 percent. The first day returns for most IPOs this year ranged from 6 percent to 15 percent, with only technology averaging a more robust 24 percent return.

I will have Renaissance Capital's Kathleen Smith live with me on Squawk on the Street on Monday morning to discuss the state of the IPO market.

--By CNBC's Bob Pisani

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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