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Preparing for the Week in IPOs

Monday, 27 Sep 2010 | 7:05 PM ET
Know Your IPO
Get Cramer's take on how to play the IPO market.

The busiest five-day run for initial public offerings is upon us, with nine companies hitting the market this week. The bigger news, though, is that investors should get them at at incredibly low prices, as brokers try to entice that idle money off the sidelines.

Let’s face it, brokers want commissions, and though the market’s been “soaring,” Cramer said, individual investors have been withdrawing their money from stocks for 16 straight weeks. One of the best ways to bring that money back in is by underpricing IPOs, and the “Mad Money” host assumes that will happen this week.

See, 161 IPOs are planned before 2011 arrives, and the nine coming public over the next few days offer brokers the chance to get retail investors excited about the rest of the year. So they’ll cut prices enough that these new stocks pop early, allowing those who got in on the deal to profit.

“That’s how they seduce you into stocks,” Cramer said. “I’ve seen it happen over and over again in my 31 years of investing.”

To help viewers prepare for the week, Cramer reviewed his IPO picks of the past 12 months, looking for emergent themes that could play out again.

The first lesson learned? IPOs almost always work better as quick trades than longer-term investments. The 13 stocks Cramer recommended as the latter shot up 13% between their pricing and their first public trade, but have on average remained flat since then. A123 Systems, Telsa Motor and GreenDot retuned 19% on the initial jump, but are down 9% if you still own them today.

Another commonality that stands out is that sectors hated by the market won’t deliver long-term results. See: the tech stocks. MaxLinear and Calix performed well at first offering but have since dropped into the red but the group as a whole has been so hated by Wall Street.

What have worked, though, are stocks that are cheap relative to their peers with good earnings visibility. Think subscription-based companies like Fortinet or Ancestry.com. These two are up 41% and 45%, respectively, since their IPO because investors can see how much money they’ll make going forward.

The biggest winner so far, of all Cramer’s picks, is QLIK Technology, another long-term winner. That stock’s soared a whopping 108% since its July 2009 offering.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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VA71
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AONEQ
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FTNT
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MXL
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QLIK
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TSLA
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CALX
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GREEN DOT
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