Do you want to find great stocks? If so, think new.
IBD research shows that the market's best winners had their biggest price advances not long after going public. That's because companies with new products, services or technologies tend to produce strong sales and profit growth before the competition has a chance to catch up.
The IPO Analysis column appears every Tuesday and Thursday. The stocks went public in the past three years and are selected from a computer-generated screen that picks out the best new issues based on key fundamental and technical criteria. They include profit and and relative price strength.
The screen yields as many as 32 stocks. Typically, half the charts will run on Tuesday and the other half on Thursday. Tableau Software (DATA), whose software turns huge amounts of data into easily understood graphs, was one of three recent IPOs featured in the Jan. 27 inaugural column.
On that day, the stock closed at 73.50 — still in buying range after breaking out above a 71.88 from a narrow cup-with-handle base. on the — and in subsequent days — was weaker than you'd like to see on a breakout.
So investors could have waited for the stock to clear a later buy point at 77.84, or 10 cents above the left-side high of the cup. It did so on Feb. 5 (please see a daily chart), gapping up in huge volume on a better-than-expected Q4 report. Profit jumped 400% to 20 cents a share, topping the prior quarter's 300% increase. Revenue soared 95%, picking up from gains of 62%, 71% and 90% in the prior three quarters.
Tableau's base was smooth and symmetrical and showed plenty of accumulation. Also, its Relative Strength line hit a new high on the Feb. 5 breakout, boding well for the stock's success.
Tableau is now 26% past the 71.88 early buy point and 16% above the 77.84 entry. It could offer a new entry later. If it stays strong, Tableau may show up again on the IPO Leaders page.
Some big winners will quickly form IPO bases, which are shorter in length than traditional patterns shaped by more established stocks. Study the price-and-volume action within the base and wait for a big move in heavy trade before making a buy. Google (GOOG) broke out of a four-week IPO base in September 2004, about a month after its debut, and nearly doubled over the next two months before pulling back to form a traditional cup base.