Know Your IPO

There’s a change-up IPO coming out this week, and Cramer thinks it's one that you could hit out of the park. The company is Superior Offshore International (DEEP). It’s a sub-sea construction and commercial diving company that makes money by repairing and maintaining the drillers. There are two things about the DEEP IPO that's set it apart, Cramer says. First of all, it’s a throwback – it’s got the earnings, and it’s got the fundamentals. And secondly, it’s part of the oil services sector that has been ramping lately (although today was not a great day for these stocks.)

Oil services names Cal Dive and Halliburton have been doing well recently, but despite that positive backdrop, the DEEP IPO is being priced pretty reasonably at $14-$16 per share. Cramer thinks this could be a rare example of a new piece of merchandise being mis-priced by the underwriters, and that’s not something to miss. DEEP could be one of the best sleeper IPOs in a long time, he says.

For DEEP, Cramer would be willing to pay up to $20 per share, well above the $14 - $16 price range – that’s how off he thinks the pricing is on this one. But you have to know what you’re buying.

Most of DEEP’s business is in the Gulf of Mexico. Their business is mostly in shallow water but they are expanding into deep water, which is what Cramer really likes. But he’s never been a big proponent of drillers in the Gulf because he thinks, like most of Wall Street, that all the rigs in the Gulf will just go abroad as soon as they get better day rates. But here’s the catch with DEEP: diving and sub-sea construction, the main things the company does, aren’t only about new drilling. Companies like DEEP also repair and maintain current drilling activity, and Cramer believes that spending will remain firm. Also, DEEP is a great repair and catastrophe play – and there’s still years left of repair work from Katrina that DEEP is doing. And since the hurricane season is expected to pick up this year, the company will be levered to repairing infrastructure after the storms hit.

Bottom line: DEEP is a great company, with real profits, in a sector that’s doing increasingly well, but Cramer thinks the IPO is under-priced. Deals like this don’t come along often, and Cramer thinks you should consider paying up to $20 for this one after it comes public.

Jim's charitable trust owns Halliburton.

Questions? Comments?