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The Australian initial public offering (IPO) market went into a frenzy late last year and Milford Asset Management senior analyst William Curtayne predicts the frenzy will resume in the next few weeks.
In December, there were 21 IPOs, the highest number of new offerings in a single month since December 2010, as unlisted companies took advantage of the momentum in equity markets to attract new investors.
Investment banks had indicated a possible 30 new listings in the early part of this year from private equity sellers alone, he said.
''Assuming stable equity markets, we are likely to see the frenzy resume later this month,'' Mr Curtayne said.
The average return on December listings was 5.1% but the large variance in individual returns highlighted the need to be selective when investing in new issues, Mr Curtayne said.
Investing in IPOs was more risky than buying listed shares, as less information was available on new listings.
Investors should concentrate on companies raising new capital.
If a business was not raising new equity, the owners were selling shares, which might be because the company had a poor outlook, he said.
''Every owner will say they are selling to diversify, but the owner of a great business with a fantastic outlook will not want to diversify.''
Being wary of private equity floats was another rule for investors, he said.
Private equity companies could be good at buying a good business, cutting costs, scaping the investments for future growth, stuffing it full of debt and selling at a ''fat profit'' before the lack of new investment resulted in a slump in earnings.
There had been some disastrous private equity floats in Australia in recent times.
Investors should not buy just because everyone else was buying, Mr Curtayne said.
Every IPO was ''many times oversubscribed'', according to promoters.
It could be tempting to invest in the IPO of a business that had a poor long-term outlook on the expectation of making mouth-watering short-term returns because there was ''huge demand''.
''If this apparent demand fails to appear after the listing, the stock will fall and you will be left wondering where all the buyers went.''
However, if the company was fundamentally sound, investors could buy more shares below the issue price, he said.
Vehicle leasing and fleet management company SG Fleet was expected to be the next IPO with an expected listing, early next month.