"New" is intrinsically exciting. The potential of something new feels limitless and captivating. In CAN SLIM, IBD's seven-point investing paradigm, N is for "new" and is a crucial element of how to buy stocks.
It may mean a new product or service, new management, new stock price highs, or new industry conditions. IBD studies of past market leaders found that 95% of the big winners fell into at least one of these categories.
New Products Or Services
Innovation, another way of saying new products and services, is a common element of successful stocks.
Apple was forming a classic cup-with-handle base at the end of 2003 (1). The company was still riding high on iPod sales. In January 2004, Apple announced the iPod Mini and began shipping it in February.
The handle finished at the end of February and AAPL stock took off. It found a 178% gain until pausing in a flat base in December 2004. Apple continued to innovate until a peak in January 2006, with releases of the Shuffle, Mini 2nd Gen, Nano and iPod Video.
How To Buy Stocks: Change In Management
"A change of management brings new vigor, new ideas, or at least a new broom to sweep everything clean," IBD founder William O'Neil wrote in "How to Make Money in Stocks."
We can see this idea in practice with Starbucks.
During the 2008 recession, the coffeehouse chain brought back Howard Shultz as CEO. Belts were tightened as Shultz led a mass firing of executives and employees and shuttered hundreds of stores. As unpopular as this was, the stock climbed 623% from July 2009 to October 2015, making all-time highs.
New Highs Out of Proper Bases
Anyone who has been an IBD subscriber for even just a few weeks can tell you the adage "buy low, sell high" is wrong.
In his book, O'Neil reported his analysis of the biggest winners: "What seems too high in price and risky to the majority usually goes higher eventually, and what seems low and cheap usually goes lower."
To simply buy a stock on the way down, you won't know if you're getting a discount or trying to catch a falling knife.
Identifying patterns like the cup with handle or double bottom maximizes your chances of picking a winner. When a stock breaks into new high ground after finding support or beating resistance, that is your green light. IBD flags these situations as "buy points" or "buy ranges."
How To Buy Stocks: New Industry Conditions
When a major shift in the market occurs, the resulting shake-up can propel a stock forward. Zoom Video became everyone's go-to video calling platform during the pandemic. A deep cup pattern ended in late February 2020.
The stock ran up almost 450% by October 2020.
The Russian invasion of Ukraine brought huge upheaval to the oil and gas industries, making energy one of 2022's best sectors. Scorpio Tankers closed 2022 with a 319% change in price, PBF Energy with a 214% gain. Dozens of other energy stocks also made huge gains.
