Mad Money

Two IPOs to Avoid


Earlier this week, Cramer told viewers that now is a great time to buy into IPOs. After the tough losses last week, brokers want to bring people back to the market by keeping the offering ranges low. But that doesn’t mean you go around buying up anything you can get your hands on.

And to be honest, Cramer’s a bit hesitant about diving into a speculative investment right now. He has made a mistake or two in the recent past (Melco…), so he’s more cautious than encouraging these days when it comes to playing this market. The last thing he needs is another night on the dirty linoleum floor with a bottle of cheap scotch – or another whack of the cat-o-nine tails, for that matter.

So the two stocks Cramer recommends you avoid are Aruba Networks and Glu Mobile. First off, Home Gamers should know that he wouldn’t touch these IPOs – with a 10-foot pole – unless they lowered their price ranges. If they do, and it is possible they will, then he’d give you the go-ahead to buy. But he wouldn’t even buy in at the low end of their current ranges.

Aruba makes switches used by companies for wireless local area networks. It’s a decent business and they even got some work from Microsoft a few years ago. The problem? Their two biggest competitors are Motorola and Cisco Systems. Another Cramer maxim: Don’t buy stocks that compete with Cisco. And Motorola is still a heavy hitter.

Another problem is that Aruba sells its switches through vendors, namely Alcatel-Lucent. And Aruba switches are actually sold under the Alcatel brand. As far as Cramer’s concerned, the last company a business would want to be branded with would be Alcatel-Lucent. Even if Aruba drops its range, Cramer would steer clear of this stock.

Glu Mobile makes games for cell phones and PDAs. Again, it sounds like a good business to be in, but in this case the price is wrong. The current range is $10 to $12 a share. That would value Glu Mobile on par with the best of breed video game competitors like Activision and Electronic Arts. Whatever Glu Mobile is, it’s not best of breed. The company has never been profitable, and the majority of its sales come from licensing third-party brands so it doesn’t have any proprietary advantages. The only way Cramer would play this IPO is if the price dropped below $8 a share.

Bottom Line: Not every IPO is hot. Don’t touch Aruba Networks, and keep away from Glu Mobile unless they cut the pricing down below $8 a share.

Questions? Comments?