Why the Teavana IPO Euphoria?

What's up with the Teavana IPO? It's not so much the company...it's the sector and a desperate grab for alpha (outperformance). I've been asked why a tea company, which yesterday was pricing 7.14 million shares at $13-$15, priced at $17, and opened at $28.95 (!).

The answer: Sectors have runs...they are in the right sector at the right time. And for the moment, caffeine is in. Look at:

- Green Mountain (historic high, was $40 in March, $100 today),

- Starbucks (historic high this week),

- Peet's (just off historic high),

- Dunkin Brands with a huge IPO yesterday.

So yes, there is a herd mentality.

But there's a little more to it than that. Managers are desperate for alpha (outperformance)...TEA has strong growth rates in revenue and net income...that attracts interest.

The real test for the company will be a month out. Unfortunately, I was hearing that 50 percent of the shares went to the top 20 accounts...so what? Well, look at the volume: at noon, we were approaching 7 million shares traded...they sold 7.14 million...a 100 percent turnover in a few hours....I say unfortunately because those institutional guys are probably selling, and retail guys are coming in.

Speaking of herd mentality...gas fracking stocks are also hot...and one is pricing tonight. C & J Energy is pricing 11.5 million shares at $25-$28.

Elsewhere:

Higher costs are still an issue...it's not a hot topic, but consumer companies are still being affected by higher raw material costs. Three examples:

1) Goodyear Tire reported earnings of $0.65 cents, far ahead of the $0.27 cent consensus. Improvement on price mix overcame higher raw materials costs. It said it now expects raw materials costs to rise more than 30 percent for the rest of the year, up from previous projections for increases of 25 percent to 30 percent.

2) Kellogg raised its sales growth outlook, but did not raise its earnings guidance, because they are expecting commodity costs to increase 8 percent this year. They are expecting lower volumes due to the higher prices they will be charging.

3) Colgate reported that gross profit margins dropped to 57.4 percent, down 140 basis points, "as higher material costs more than offset benefits from cost savings..."

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