Hot off the press.

• Author: McMillan, Alex Frew
• Position: 1994 initial public offerings in North and South Carolina

But as our study of Tar Heel IPOs shows, new shares can lose their luster before the ink dries.

John McConnell has good reason to like initial public offerings. After all, he is CEO of Raleigh-based Medic Computer Systems, which posted the second-largest gain among recent North Carolina-based IPOs. He's seen investors' warm response make his 13.6% stake in the medical-records billing company 80% more valuable. But he wouldn't invest in any other IPO.

Maybe that's because he has also seen his stock lose more than half its value in the space of two weeks. And he's concluded that "timing and luck" are the real driving forces behind IPOs. Besides, he's not sure he could get the hot stocks even if he knew which were going to be winners.

"Unless I had a large net worth and could afford to get in on all the IPOs [with] a broker, I wouldn't be buying IPOs," he says. "Individuals are only going to get the IPOs that the institutions don't want."

It's not clear that institutions should be interested in IPOs, either. Of the 34 North Carolina-based companies that went public during the last five years, 19 saw their stock trading above their offer price at the end of June. Sure, investors who bought stock in Durham-based Coastal Healthcare when it went public have almost tripled their money. But there were just as many chances to lose a lot, too - our chart shows nine stocks have lost more than 40% of their original value as opposed to seven that have gained a similar amount at the top end of the scale. In fact, if an investor had put an equal amount of money into all the IPOs on the list and held the stock until now, the average gain would be 4.86%.

Admittedly, comparing this year's IPOs with those of five years ago is a bit arbitrary, making it difficult to draw any conclusions about performance. An investor might have sold one stock for a profit and bought another at the right time. But a 1989 BUSINESS NORTH CAROLINA survey of North and South Carolina IPOs makes the current table look positively rosy. Only 10 of 27 IPOs from 1983 through 1989 were trading above their offer price in December 1989.

Nationwide, the 2,699 IPOs from 1989 through 1994 have proved fairly solid earners, increasing an average of 9.95% in their first week of trading, according to Securities Data Corp. They continue to increase in value, providing returns of 11.33% after a month and 19.59% after a year. But Tar Heel IPOs over the same period lag behind, showing returns of 9.26%, 9.92% and 3.53% after a week, month and year.

Neal Kaplan, a securities analyst with Scott & Stringfellow in Richmond, Va., notes that established stocks would have been better investments. "There doesn't seem to be any clear-cut reason why some [IPOs] would win and some would lose."

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There has been considerable volatility in most of this survey's stocks, volatility that a shrewd money manager can put to use. Durham-based...