How to Play the Kayak, Palo Alto IPO

Following Facebook’s botched initial public offering, it seems nobody on Wall Street has wanted to do a deal, said Jim Cramer on CNBC’s “Mad Money.”


In an ironic twist, though, the “IPO draught” will come to an end next week thanks to Morgan Stanley — the very firm that infamously took Facebook public. On Thursday, July 19, Morgan Stanley will take both Kayak.com and Palo Alto Networks public. Cramer likes the prospects of both companies. Kayak operates a popular travel website while Palo Alto provides cyber security products and services.

To Cramer, Morgan Stanley “blew it” with Facebook by pricing the stock at $38 a share, which he thought was too high given the “cooling fundamentals” that institutional clients learned of on the eve of the deal. While Cramer can understand why investors might want to stay away from both the Kayak.com and Palo Alto Networks IPOs, he thinks that’s the wrong takeaway.

“I think the bankers at Morgan Stanley privately recognize that they tarnished their reputation with the bungled Facebook deal. They know that they need to do something to redeem themselves or at least save face,” Cramer said. “That's why I bet Morgan Stanley will do everything in its power to price both Kayak and Palo Alto low enough to ensure a nice pop at the opening with no trading glitches from the NASDAQ. They need to woo investors back into the game, and they're going to use these two hot tech IPOs to do it.”

With that in mind, how would Cramer treat these “red-hot IPOs?” For both Kayak and Palo Alto, Cramer suggests getting shares in the actual deal and then flipping them into the initial spike.

“Don't stick around and don't buy in the aftermarket,” Cramer said. “Be a flipper and you should come out ahead. Be an investor and you just might regret it, especially in a market that has simply not rewarded the patience of the vast majority of newly minted Internet IPOs.”

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