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There are always plenty of other good stocks around to choose from whose value may appreciate just as much as IPO stocks.

The Internet and e-commerce sector have been credited as a catalyst for the explosion of the IPOs in recent years, as it offers new paradigm of conducting business in comparison to traditional methods.Netscape (NSCP), now part of America Online (AOL) which also recently merged with Time Warner, was perhaps the first IPO in this sector. Others such as Amazon.com (AMZN), Yahoo (YHOO), Ebay (EBAY), and E*Trade (ET) were successful IPO samples in the Internet sector.

Mergers And Acquisitions (M&A)

You might have heard of the term "sector consolidation." Consolidation refers to the process by which a sector rife with many competing companies goes through a transformation at the end of which it is left with a only a few companies. Consolidation is a natural course for many sectors, as there usually is not enough business to support all the companies in those sectors. Some simply go out of business, others may get absorbed into other companies (acquisition), and some may pool their resources together to form new and larger companies (merger).

As a company becomes a target of an acquisition or takeover (especially by another well known entity), its stock begins to receive more attention from the investors usually jumping at such announcement. A takeover or acquisition intention is an automatic vote of confidence in the company, making its stock more appealing to the investors. The process of a takeover is a complex one, beyond the scope of this book, but here is a very simple description. Many times a smaller company could become a takeover target by a larger company because it has something that the larger company views as a good …