Never underestimate the importance of something new in the stock market.
Netflix (NFLX), LinkedIn (LNKD), Best Buy (BBY) and PulteGroup (PHM) are four very different companies that all share a common trait: They all had the "N" in in place before big price moves recently.
The "N" stands for new, as in new product, new high, new management and new conditions in an industry. IBD studies of past market leaders found that 95% of the big winners fell into at least one of these categories.
1. New Product. It's rare for a former market leader to come back from the abyss, but Netflix has done just that. Its DVD-by-mail business was a growth driver in 2009-10, but the company's shift to online streaming is driving renewed growth.
In the second quarter, Netflix added 630,000 streaming subscribers in the U.S., bringing its total to 29.81 million domestic and 8 million international subscribers. Meanwhile, its DVD business continues to bleed; in Q2, Netflix had 7.51 million subscribers, compared to 9.2 million subscribers a year ago. Two years ago, DVD subscribers totaled 15 million subscribers.
In the second quarter, earnings surged 345% from a year ago to 49 cents a share. accelerated from the first quarter, rising 20% to $1.07 billion.
2. New High. When it comes to LinkedIn, everyone seemed to think the stock was already too expensive when it was forming a cup-with-handle base in January. But shares broke out in heavy on Jan. 10, then gapped up to a on Feb. 8.
One of the great paradoxes in the stock market is what seems too high in price and risky usually goes higher, and what seems low and cheap usually goes lower. LinkedIn not only had a new product working in its favor but it was also hitting highs. The stock is now up 112% since its January over 117.42.
3. New Management. Electronics retailer Best Buy isn't your typical CAN SLIM stock, but its relative price strength has been noteworthy in recent months. It also has a new CEO in place who's engineering a turnaround. Hubert Joly took the helm in early September last year (1) Shares have turned in 2013. He instituted a price-match policy and a cost-reduction program. Joly has also made online sales the company's top priority.
Shares surged 13% on Aug. 20 after earnings handily beat expectations. Online sales rose 11% from a year ago, thanks to higher traffic and an increase in average order value.
4. New industry conditions. Finally, the homebuilders broke out en masse in June 2012. Improving demand was the catalyst as investors bet on stronger growth ahead. PulteGroup broke out of a base in June 2012 and rallied 125% over the next 11 months. In 2012, annual earnings growth at PulteGroup surged 738% to 67 cents a share.