When the stock market is on the upswing, private companies get in line to sell their shares and become members of the new crop of initial public offerings (IPOs). Bankers like to know that investors are in a buying mood when taking these companies public. But as often happens, the market can shift direction and these newly-public companies are set adrift in a sea of selling. Many become “broken IPOs,” which we define as any stock selling more than -15% below its IPO price. As the accompanying chart shows, some of these stocks are off -25% or even -45% since going public in the past six months.

Prior to going public, these companies were heavily scrutinized by potential investors, and the price at which they went public represented a balance between all of the investment pros and cons. Not all that much has changed in their fortunes, except for investors’ moods. Some of these companies still hold a great deal of growth opportunities, or were simply priced to reflect value. Now, they can be bought on sale.

Alimera Sciences (Nasdaq: ALIM)

Diabetes is on the rise, and so are instances of diabetes-related blindness. There is currently no treatment for the vision condition, but Alimera Sciences has a very promising approach. The company’s lead product, Iluvien, is an injectable tube that provides localized steroids that keep the eye healthy. Clinical data has been strong and analysts expect the Food and Drug Administration (FDA) to approve Iluvien by the end of the year. Approval in Europe has also been sought, and Alimera may be able to launch Iluvien in both markets in the first quarter of 2011.

#-ad_banner-#If approved, Alimera is expected to quickly penetrate this unmet market opportunity. Analysts at Citigroup (NYSE: C) think the company can earn $1 a share next year and more than twice that in 2012. Meanwhile, shares were priced at $11 in late April but have now fallen below $9 in this recent market correction. Shares trade for about four times Citigroup’s 2012 earnings projection.

Action to Take –> The FDA is expected to receive Alimera’s formal application for approval by the end of June and is expected to give the device fast-track status some time in the third quarter. Shares should start to rise if and when those milestones are hit.

Mitel Networks (Nasdaq: MITL)

Selling telephones and other communications gear isn’t a sexy business, but it sure is profitable. What the business lacks in growth prospects, it makes up for in profit margins — which is why investors thought they would’ve fared better with which went public in late April and then proceeded to quickly lose -30% of its value. A $14 IPO is now a $10 busted IPO. Shares are now quite cheap, trading for just five times next year’s EBITDA.

Mitel focuses on small to medium-sized businesses, which tend to be very slow to boost spending after coming out of a recession. So Mitel is a late cycle play, which means we’re still a year or two away from seeing rising demand for its telephone systems. The company is expected to earn about $1.10 a share in profits in fiscal 2011. Assuming sales rise about +10% in fiscal 2012, analysts at UBS think per share profits can exceed $1.50. Not bad for a $9 stock.

Action to Take –> New investors would be happy if shares simply traded back up to the IPO price, which would be good for a +50% gain. At that price, shares would trade for around eight times projected 2011 EPS and six times projected 2012 EBITDA.

Crude Carriers (NYSE: CRU)

It costs loads of money to build the massive ships used to transport crude oil. The value of those ships tends to rise when demand for oil transport exceeds supply. When demand slows, investors look to the replacement costs to build new ships to place a floor price on the value of existing ships.

When Crude Carriers went public in March, bankers noted that its roster of ships would cost about $300 million to replace, or $20 a share. Asking $19 for shares in an IPO seemed reasonable. But in this market environment, investors may have overlooked these data points as shares drifted lower to around $16.

If nothing else, the company could just sit tight in any economic slowdown and sell its young fleet of ships for about $20 a share. Or it could wait even longer for peak market conditions when crude oil tankers are valued some 20% to 30% above their replacement cost. (It takes a long time to build these ships and buyers pay a premium to get immediate delivery of used ships.) In that scenario, the value of the shipping fleet would be closer to $27 or $28 a share, roughly +70% above the current price.

Action to Take –> Shares appear to have found a floor in the $15 to $16 range, thanks to that underlying asset support. Now, patience is required until market conditions unlock value for this crude oil transporter.

Cobalt International (NYSE: CIE)

The massive oil spill in the Gulf has hit shares of all sector-related plays hard, including new IPO Cobalt International. Talk about lousy timing. Shares have fallen nearly half since their December 2009 IPO. Making matters worse, Cobalt is still in the process of developing its deepwater energy fields and is unlikely to post meaningful sales growth until 2012 and robust profits until 2013. The good news: the current moratorium on deepwater drilling should be lifted long before then and the money raised in the IPO should tide Cobalt over until it reaches profitability.

Action to Take –> This stock is washed out with little support. But the company’s energy fields are worth a collective $18 a share according to analysts at Goldman Sachs (NYSE: GS). If investors can ride out this storm, they may be looking at a +150% gain several years down the road.