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When considering the purchase of a stock, investors should find answers to five key questions. Fundamentals-What is the company's business, is it financially sound -- and is it growing? Price History-How much have other investors been willing to pay for the stock in the past? Price Target-How much are investors likely to pay for the stock in the future?
Catalysts-What catalysts will change investors' perceptions of the stock in the future?
Comparison-How does the stock compare to others in its industry?

During 2006, investor demand for initial public offerings (IPOs) was again fairly tepid: By our tally, about 200 companies went public--roughly the same number as the previous two years--but well below the overheated figures seen during the heady times at the end of the 1990s. Morningstar has been tracking the ranks of newly public companies for years, looking for businesses (and stocks) worthy of attention. But more recently, we've increased the amount of attention paid to the IPO market, and our analysts have taken a hard look at many of the firms that went public last year.

While every firm should be judged on its own merits, one way to guard against buying into an IPO at peak valuations is to examine which sectors are "hot." Health-care, energy, and financial services have been the most active recently; of the roughly 80 firms that went public in the fourth quarter of 2006, half fell in or around these three sectors. Getting in on an offering in a hot sector can produce a quick gain, but predicting which stocks will be popular can be risky. For example, within health care, Trubion Pharmaceuticals. Also, with energy prices high throughout the year, it's no surprise that a number of firms with ties to oil and gas have sought to raise funds. As energy prices have fallen, though, the sector has performed poorly: About a third of fourth-quarter IPOs are below their initial offer price. We actually think there are some interesting companies in this group, particularly among pipeline operators, to which we often assign our highest wide-moat rating based on their strong competitive positions.

In the space below, we'll take a look at a handful of the newly public firms we think have attractive stocks and businesses. We'll review these firms again and take a look at another crop of ideas after the first quarter. To see our full Analyst Research, fair value estimates, and risk and moat ratings on these and more than 1,900 other stocks, take a free Premium Membership trial today.

SAIC is a defense contractor that went public in October. The firm distinguishes itself with its broad scientific and technological expertise that runs the gamut from future combat systems and integrated port inspection systems to advanced robotics and even biopharmaceuticals. Owing to a diverse base of engineers and scientists, the firm has successfully identified and capitalized on several emerging technologies. As long as defense intelligence and technological advancement are crucial on the battlefield, we believe SAIC will remain a strategic partner of the government and a good long-term bet. One of the reasons SAIC chose to go public was to create liquidity for employee stockholders. Employees have long received equity in the firm based on contributions to contracts and cultivation of new business opportunities. This ownership culture has helped the firm build a deep bench of engineers who remain loyal to the company.

On the civilian side, more than half of revenue comes from nonappropriated programs. For example, visa and passport user fees fund Stanley's passport processing contract, and bank fees fund its work for the Federal Reserve. On the military side, Stanley's contracts are not, for the most part, dependent on events, such as military engagements. As an incumbent vendor, the firm has the upper hand when contracts are renewed; consider that since Stanley won the State Department's passport-processing contract in 1992, the re-competes in 1997 and 2002 went uncontested, as rivals determined that its position was unassailable. Also 55% of Stanley employees have secret or top-secret clearances.