As any CEO will tell you, working toward an initial public offering is an arduous process. Lawyers need to file reams of paperwork, bankers need to determine a suitable valuation and trading desks must line up demand for shares.

Yet for some companies, the tough days don’t end there. After the IPO takes place, weak market action or simply a fickle base of initial shareholders can turn a potentially promising new stock into a dud. Every year, more than a few IPOs end up trading at levels lower than the offering price.

#-ad_banner-#That’s why as every year winds down, I look at the crop of IPOs, seeing which young companies have already been placed in the bargain bin. To be sure, some stocks deserve to be unloved. They represent companies with a dim future and the IPO was simply a way for its former backers to dump shares on someone else’s hands. But there are also some diamonds in the rough that deserve a second look. Here are three that I am focusing for a rebound in their sophomore years.

MediWound Ltd (Nasdaq: MDWD)
A number of biotech IPOs traded down this year as investors grew to fear that they would burn through all of their cash before ever getting a product to market. These “pre-revenue” stocks are often too risky to own, especially when capital markets might not be in supportive mood when it comes time to raise fresh capital.

But this company, which is developing advanced wound care products, is closer to the finish line than investors may realize. Its NexoBrid wound treatment has already received approval from European regulators, and quarterly sales are expected to ramp up in 2015. Phase III trials are set to start in the United States in 2015, suggesting potential approval on our shores by the end of that year. Based on its current cash burn, Mediwound appears to have enough cash to last through 2016.

Analysts at BMO Capital figure NexoBrid faces a $250-to-$300 million market opportunity, though it will likely take several years after FDA approval to reach that target. (Another product EscharEX, which has shown greater efficacy than current wound treatments such as Santyl, could be an even more popular drug for the company, according to analysts). Shares of MediWound began trading at $16 in March 2014, yet have to around $6 in recent months.

Independence Contract Drilling, Inc. (NYSE: ICD)
Talk about lousy timing. This driller-for-hire pulled off an IPO, only to see exploration & production stocks crater in the next few months as a drop in oil prices led to concerns that shale-focused drilling activity would dry up. Of course such gears now appear overblown, as oil prices have stabilized in the upper $70’s. But the damage has been done.

It’s a good thing that the company raised $126 million (net of underwriter fees) at the time of the IPO, as shareholder’s equity now stands at around $140 million, well above the $90 million market value. ICD will report Q3 results on Tuesday, November 11, and if management notes that its fleet of modern, energy efficient rigs remain fully-utilized, then shares are bound to post a relief rally. Even a move back to book value would represent 50% upside.

The Rubicon Project, Inc. (Nasdaq: RUBI)
In the first 15-to-20 years of the Internet, those banner ads you saw on the screen were intentionally placed there by someone in the company’s advertising department. These days, humans let the machines do the work. Rubicon Project is among a group of companies that provide automated digital advertising insertion technology. It’s not as simple as dialing up an ad based on demographic data. There are dozens of variables that are assessed (often found in your browsing history) that are instantly analyzed before an ad is served. Google, Inc. (Nasdaq: GOOG) is the industry leader, though The Rubicon Project is the only pure play on this theme.

Rubicon takes a more hands-on approach than just automatically placing ads. It helps media buyers learn what works — and what doesn’t — in this fast-growing ad category. You can see the impact of the strategy on the company’s profit & loss statement: Rubicon’s revenue is on pace to grow at least 40% this year — for the fourth straight year. Of course such growth can’t last forever, and investors are already fretting that revenue growth will slow to 30% in 2015. Shares, which hovered in the low $20s after the April 2014 IPO, now trade for less than $12.

Yet the sell-off obscures the fact that Rubicon just delivered a “beat-and-raise” quarter, as the company’s customer base continues to migrate from manually-placed ad buys to automated ad insertion programs. Management also ran through an impressive list of new clients in the quarter conference call. Clients typically take several quarters to fully ramp up their ad buying, so much of the impact of the new customers will be felt in the middle of 2015.

Risks To Consider: Broken IPOs often need a number of quarters to build a durable long-term shareholder base, and these companies have not yet established a core following. As a result, they may be among the first to be sold in another market rout.

Action To Take –> The crowd moved on and is no longer paying attention to these companies. Yet as they generate a longer-term track record as a public company, investors are likely to notice how inexpensive they are in relation to their market opportunity. While few are paying attention, you have time to closely scrutinize quarterly results to ensure that these companies are still on a path to the right catalysts and/or higher sales.

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