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New Products, Management Can Drive Stock's Price Higher

What do most past winners have in common that helped spur their big advances — besides strong current and annual earnings growth

It's the N in CAN SLIM, which stands for "New." "It takes something new to produce a startling advance in the price of a stock," IBD chairman and founder William O'Neil wrote in "How to Make Money in Stocks." It could be an innovative new product or service, new leadership or changes within an industry.

Industry changes include shortages, pricing shifts or new technologies. A new condition in an industry may serve as fuel to propel a stock to new price highs.

Or, as O'Neil wrote, "It can be an important new product or service that sells rapidly and causes earnings to accelerate above previous rates of increase.

Think of Apple's (AAPL) huge rally after launching the iPod in the early 2000s. Dell, Microsoft (MSFT) and Yahoo (YHOO) surged in the 1990s as they rolled out build-to-order PCs, Windows operating software and a popular Internet portal, respectively.

"Or it can be a change of management that brings new vigor, new ideas or at least a new broom to sweep everything clean," O'Neil wrote.

For instance, back in the 1960s, McDonald's (MCD), with new owner Ray Kroc at the helm, revolutionized the fast-food industry. And Starbucks (SBUX) has been on a tear since Howard Schultz in 2008 returned to lead the coffee chain.

IBD studies show that the stock price rallies of more than 95% of the past decades' biggest winners were fueled by the N factor.

Restoration Hardware (RH) is a good example. The home furnishings retailer, bought on the cheap in 2008 by private-equity firm Catterton Partners after the business collapsed, has seen its fortunes change dramatically after a major overhaul. With former chairman and CEO Gary Friedman now back at both posts, the company has opened bigger stores and added curated collections of art, antiques and kitchenware. It plans to launch RH Atelier, an upscale brand of apparel accessories and footwear.

The stock went public again in late 2012 at 24 a share and soared 213% in the first eight months. After building a series of bases (1), RH triggered the eight-week hold rule as it rallied 23% (2) from a mid-June breakout this year. While it's pulled back with the market, RH remains nearly 11% above its 76.20 entry.