Is Flood of Secondary Offerings a Bearish Sign?

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If you’re an investor doubting the bull market, the flood of secondary stock offerings on Wall Street lately probably isn’t sitting well with you. The amount of public companies raising capital by offering up more shares is simply staggering, and some are seeing it as a sign that CEOs are trying to raise capital while they can before the buyers on Wall Street run for cover once more.

There have been 23 filings so far in March for secondary offerings, and 15 pricings of offerings.  The current laundry list of secondary offerings covers every corner of the market. Food giant Diamond Foods (DMND) has filed for a secondary public offering. There are big financial firms like credit card giant Discover Financial Services (DFS) and insurance and retirement icon Hartford Financial Services (HIG). Also up for public offering are shares of drugmakers like small-cap biotechs Lexicon Pharmaceuticals (LXPX) and Novovax Inc. (NVAX). There are telecom stocks like Iridium Communications (IRDM) and tech stocks like electrical component manufacturer Satcon Technology (SATC) and circuit board maker TTM Technologies (TTMI). Even green energy stocks like Trina Solar (TSL) are getting in on the action.

The list goes on. All of these companies either have priced deals or pending deals for secondary stock offerings, and more are joining the party. And to be clear, just because a company has filed doesn’t mean that it will actually go through with pricing and following through on the offering. But even if some of these never come to pass, the overall trend is worth noting.

Contrarians see the stock offerings as a sign that the window of opportunity could be closing, and that companies need to price their shares while the market is favorable. After all, when you’re selling millions of shares at a time – or 10 million in the case of TTMI – a few percentage points in share price makes a huge difference. After seven straight days of positive movement on Wall Street (and today looking like #8 as of this writing, knock on wood) and a dramatic 60% surge for the major indexes since March 2009, many CEOs apparently want to pull the trigger now to raise capital rather than roll the dice that Wall Street will keep up this trend.

But secondary offerings alone are not an absolute sign that the market has peaked. It could be that these companies are making a big mistake, just like the panic sellers who unloaded everything at the market’s bottom last year or bought everything at the market’s peak in 2007.

Nobody knows the future, but clearly many companies that need to generate cash think now is the time to sell stock. We won’t know for several months whether these secondary offerings are the right move.

Tell us what you think here.

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Article printed from InvestorPlace Media, https://investorplace.com/2010/03/secondary-stock-offerings-dmnd-hig-dfs-nvax-lxpx-satc-ttmi-irdm-tsl/.

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