This Week’s 2 Must-Buy IPOs
Web Editor, "Mad Money"
Investors this week have two different chances to play two entirely different IPOs, Cramer said Monday. But each offers its own path to profits.
First, Green Dot, the largest prepaid debit card provider in the US, which will price on Wednesday under ticker symbol GDOT. Cramer likes this one as a play on the switch to plastic from paper, as people just don’t like carry cash around anymore.
The company flourished during the most recent recession because people either unwilling or unable to use credit cards chose to load up prepaid debit cards instead. And according to Mercator Advisory Group, a payments and banking market research firm, the amount of money added to these cards should soar to $119 billion by 2012 from just $9 billion in 2008. So the growth potential here is huge.
There’s a financial reform angle here, too. While the coming legislation is supposed to restrict banks from charging interchange fees on debit-card transactions, issuers like Green Dot are exempt from these rules. That means the company gets to keep the 30% of revenues it earns from these fees, and investors get a play on FinReg that works.
Be forewarned, though, that Cramer thinks of GDOT as a trade and only a trade. He expects the stock to peter out after an initial pop, as the company is heavily dependent on Walmart , which represents 63% of revenues. Also, all of the 3.85 million shares are being offered by existing shareholders and not the company itself. And as Cramer often says, if they are cashing out, why should you buy in? The plan then is to pay no more than $35 a share for this one, and it is expected to price at between $32 and $35, and sell it quickly for a profit.
IPO number two is Ameresco, which helps its corporate clients save money through energy efficiency, and Cramer likes this play for the longer term. The company operates in a $5 billion to $5.5 billion market that should grow at a rate of 26% through 2011. McKinsey estimates that the US will need $500 billion in energy efficiency investment through 2020 to save $1.2 trillion worth of energy costs, and that’s on top of $216 billion expected to be spent on international energy—efficiency projects between 2008 and 2013.
Ameresco has found itself a great niche, Cramer said, given that about 75% of its revenues come from government and institutional markets. And the feds are behind this business because all of their buildings must reduce their energy consumption by 30% by 2015. There are some competitors in the space—Johnson Controls , Honeywell International and Siemens —but they are captive to the equipment they produce, while Ameresco can source from all kinds of suppliers for its projects. Cramer also said that most independent contractors in this business are too small to operate nationally, which makes for some tremendous takeover possibilities.
The stock, which will trade under symbol AMRC, is expected to price at between $14 and $16. Given Cramer thinks this one is worth $18, he recommended buying some in the IPO and then some more if it slips lower than that expected range. He said Ameresco’s long-term prospects look very solid.
When this story published, Cramer’s charitable trust owned Honeywell International and Johnson Controls.
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