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Palm gains rub off
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March 3, 2000: 11:06 a.m. ET
Hot IPO faces volatility, loses steam on second day of trading; 3Com gains
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NEW YORK (CNNfn) - Shares of high-flying IPO Palm Inc. fell more than 13 percent on its second day of trading Friday, after the electronic personal organizer maker's debut that saw shares almost triple in value.
Shortly following Friday's opening bell, skittish investors sent shares of Palm (PALM: Research, Estimates) down 12-13/16 to 82-1/4.
By contrast, 3Com (COMS: Research, Estimates), which offered the shares of its Palm unit, rose 2-1/2 to 84-5/16 after declining 22-5/16 Thursday.
Lehman Bros. issued a research report that said 3Com should be trading at 170 if the share price of Palm, in which 3Com still owns more than 90 percent, stays around Thursday's closing price of 95-1/16.
"3Com is trading $66 below the value of its Palm stake," the report said. "In a complete disjoint from its underlying value, 3Com shares sold off even though the value of its holdings in Palm skyrocketed."
The report said that for 3Com's current share price to make sense, Palm shares would have to trade down to $38, the IPO pricing level.
Also on Friday, analyst Jonathan Ross at ABN AMRO reiterated his "buy" rating on PALM, but said he would review his $90 price target after the stock settled down.
"We did not expect to see so much volatility at the open, given the run-up in 3Com, in anticipation of the float," Ross said in a research note. "Nevertheless, it appears that retail interest drove substantial volume at the open.
Palm's stock ended up 57-1/16 at 95-1/16, making it the third-biggest percentage gainer and the fourth most active issue on the Nasdaq thursday.
"We will revisit our price target and rating when the stock stabilizes," Ross said. "Our long-term view of Palm is as rosy as yesterday's (Thursday's), but we assert that the implied discount between Palm and 3Com's Palm stake is the best way to play Palm for now." 
-- Reuters contributed to this report
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