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Why you should have bought these 3 IPOs

It is well worth keeping an eye on initial public offerings (IPOs) as while there will always be some dubious floats, there are also some very decent companies which come to market via an IPO. Given the strategic tailwind many health care stocks enjoy it’s perhaps not surprising some of the better IPOs of the last 12 months have all come from the health sector.

Virtus Health Ltd (ASX: VRT) actually kicked off the recent spate of initial public offerings (IPO) when it floated last June. Probably partly because it was the ‘IPO trailblazer’, the stock appears to have been particularly attractively priced to ensure a well-supported and successful listing. After offering shares at $5.68, the shares jumped to $6.20 on the first day. They then headed as high as $9.20 and are currently trading around $7.40. The share price action is a reflection of both Virtus’ market position and the outlook for the IVF industry. Based on its prospectus forecast, Virtus is expected to report profit growth of 17.6% in FY 2014.

Interestingly, the impressive share price performance of Virtus is actually in-line with some of its peers. For example Sonic Healthcare Limited (ASX: SHL) and Ramsay Health Care Limited (ASX: RHC) are up 23.7% and 28.3% respectively.

The vendors of recently listed Japara Healthcare Ltd (ASX: JHC) set the IPO offer price at $2 per share which created a windfall for investors who got aboard the float. The shares raced as high as $2.73 on the first day of trading. While it was a superb “stag profit”, more importantly the growth outlook for the aged care provider is appealing. With profit growth of 19% forecast from FY 2014 to FY 2015, there is certainly reason to be positive about Japara’s future.

Lifehealthcare Group Ltd (ASX: LHC) is a distributor of medical devices to the medical sector in Australia and New Zealand. Unlike the other two floats mentioned above, after floating at $2 per share, Lifehealthcare’s share price actually fell, creating an opportunity for investors who missed the IPO to purchase stock on market below $2. The share price has since rallied to $2.33. While the forecast growth rates are significantly lower than both Virtus and Japara at around 7%, the valuation is also less demanding.

Foolish takeaway

These three businesses could all make worthy additions to a diversified portfolio; in hindsight ideally they would have been purchased in the IPO, however it can be hard to keep abreast of IPOs as they often flood the market at the same time; it can also often be difficult securing an allocation of stock in a float.

With good prospects for growth these three companies are worth keeping an eye on in case a future buying opportunities presents itself.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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