Page 1 of 3

Tony Featherstone is a Morningstar contributor and a former managing editor of BRW and Shares magazines. He owns BHP Billiton shares.

In a Morningstar video featuring his 2011 forecast, Ian Huntley used a terrific saying about investors needing to worry "when turkeys are flying". Never short of a colourful phrase, Ian was as usual reading the market's tea leaves better than most and encouraging readers to beware speculative stocks.

"Certainly a few turkeys are flying in the speculative resource sector," Ian said. "Stocks with no earnings that are valued at billions of dollars ... that is scary and it does worry me. It does of course encourage others to think if we can scratch a story together just like that, think of the money we can make. We now have little Aussie miners scouring parts of Timbuktu, all the horizons of Africa, Mongolia, and someone is even in the Antarctic, no doubt trying to cool off!"

I agree with Ian on small explorers and add another potential "flying turkey" - the initial public offerings (IPO) market in 2011. It's not at flying turkey levels just yet, but I reckon by the fourth quarter there'll be more gobbles, cacks and kee kees heard from small exploration floats.

Of course, mining and IPOs go hand in hand, with the majority of floats for small explorers seeking capital to develop projects. My comments about potential IPO turkeys refer only to speculative explorers - there may well be more opportunities in 2011 to buy shares through floats of larger established industrial or mining companies that are certainly not in the "flying turkey" category.

First, a quick recap of IPO action just before and after the global financial crisis for perspective. At the bull market peak in 2007, about 240 companies raised $9.7 billion through IPOs and almost half finished with year-end premiums, despite the late market sell-off that year. As markets slid in 2008, 72 companies raised about $2 billion - 69 fell below their issue price.

It was even tougher in 2009 as the bear market peaked in the first quarter - only 40 companies closed their offers that year, raising almost $3 billion, most of which was due to the Myer Holdings' (MYR) IPO in November. Just over half of 2009's IPOs finished with a year-end premium, despite a rally from market lows that year. The IPO market was almost dead in early 2009, with many companies struggling to close IPOs or having to lower capital raisings to get across the line. Several floats were withdrawn.

In 2010, 94 companies raised just under $8 billion by my count. Most of that came from the $4 billion QR National (QRN) float and $2 billion Westfield Retail Trust (WRT) offer, which was not a pure IPO but is still included. Winning IPOs outnumbered losing IPOs by almost two to one last year and the average year-end premium for IPOs capitalised below $100 million was 32 per cent, according to HLB Mann Judd's excellent recent small-cap float survey.