N = New Products, New Management, New Highs; Buying at the Right Time

N = New Products,
New Management,
New Highs:
Buying at the Right Time

It takes something new to produce a startling advance in the price of
a stock.
This something new can be an important new product or service, sell-
ing rapidly and causing earnings to accelerate above previous rates of
increase. It could also be new top management in a company during
the last couple of years. A new broom sweeps clean, or at least may
bring inspiring ideas and vigor to the ball game.

Or the new event could be substantial changes within the company's
industry. Industrywide shortages, price increases, or new technology
could affect almost all members of the industry group in a positive way.

New Products That Created
Super Successes

1. Rexall's new Tupperware division, in 1958, helped push the com-
pany's stock to $50 a share, from $16.
2. Thiokol in 1957-1959 came out with new rocket fuels for missiles,
propelling its stock from $48 to the equivalent of $355.
3. Syntex, in 1963, marketed the oral contraceptive pill. In six months
the stock soared from $100 to $550.
4. McDonald's, in 1967-1971, with low-priced fast food franchising,
snowballed into an 1100% profit for stockholders.
5. Levitz Furniture stock increased 660% in 1970-1971, with the pop-
ularity of their giant warehouse discount furniture centers.
6. Houston Oil & Gas, in 1972-1973, with a major new oil field ran up
968% in 61 weeks and later in 1976 picked up another 367%.
7. Computervision stock advanced 1235% in 1978-1980, with the
introduction of new Cad-Cam factory automation equipment.
8. Wang Labs Class B stock grew 1350% in 1978-1980, due to the cre-
ation of their new word-processing office machines.
9. Price Company stock shot up more than 15 times in 1982-1986
with the opening of a southern California chain of innovative
wholesale warehouse membership stores.
10. Amgen developed two successful new biotech drugs, Epogen and
Neupogen, and the stock raced ahead from 60% in 1990 to the
equivalent of 460% in January 1992.
11. Cisco Systems, another California company, created routers and
networking equipment that allowed company links with geographi-
cally dispersed local area computer networks. The stock advanced
over 2000% in 3V2 years.
12. International Game Technology rose an astounding 1600% in
1991-1993 with new microprocessor-based gaming products.

In our study of greatest stock market winners from 1953 through
1993, we discovered more than 95% of these stunning successes in
American industry either had a major new product or service, new man-
agement, or an important change for the better in the conditions of
their particular industry.

The Stock Market's Great
Paradox

There is another fascinating phenomenon we found in the early stage
of all winning stocks. We call it "the great paradox." Before I tell you
what this last new observation is, I want you to look at three typical
stocks shown on the next page. Which one looks like the best buy to
you? Which stock would you probably avoid?

Among the thousands of individual investors attending my investment
lectures in the 1970s, 1980s, and 1990s, 98% said they do not buy stocks
that are making new highs in price.

The staggering majority of individual investors, whether new or expe-
rienced, feel delightful comfort in buying stocks that are down substan-
tially from their peaks.

I have provided extensive research for over 600 institutional investors
in the United States. It is my experience that most institutional money
managers are also bottom buyers¡Xthey, too, feel safer buying stocks
that look cheap because they're either down a lot in price or selling
near their lows.

The hard-to-accept great paradox in the stock market is that what
seems too high and risky to the majority usually goes higher and what
seems low and cheap usually goes lower. Haven't you seen this happen
before?

In case you find this supposed "high-altitude" method a little difficult
to boldly act upon, let me cite another study we conducted. An analysis
was made of the daily newspapers' new-high and new-low stock lists dur-
ing several good, as well as poor, market periods.

Our findings were simple. Stocks on the new-high list tended to go
higher, and those on the new-low list tended to go lower.
Put another way, a stock listed in the financial section's new-low list of
common stocks is usually a pretty poor prospect, whereas a stock mak-
ing the new-high list the first time during a bull market and accompa-
nied by a big increase in trading volume might be a red-hot prospect
worth checking into. Decisive investors should be out of a stock long
before it appears on the new-low list.

You may have guessed by now what the last intriguing new realization
is that I promised to disclose to you earlier. So here are the three stocks
you had to choose among on the previous page, Stock A, Stock B, and
Stock C. Which one did you pick? Stock A (Syntex Corp, see below) was
the right one to buy. The small arrow pointing down above the weekly
prices in July 1963 shows the same buy point at the end of Stock A in
July on the previous page. Stock B and Stock C both declined.

When to Correctly Begin
Buying a Stock

A stock should be close to or actually making a new high in price after
undergoing a price correction and consolidation. The consolidation
(base-building period) in price could normally last anywhere from seven
or eight weeks up to fifteen months.

As the stock emerges from its price adjustment phase, slowly resumes
an uptrend, and is approaching new high ground, this is, believe it or
not, the correct time to consider buying. The stock should be bought
just as it's starting to break out of its price base.

You must avoid buying once the stock is extended more than 5% or
10% from the exact buy point off the base. Here is an example of the
proper time to have bought Reebok, at $29, in February 1986 before it
zoomed 260%. The second graph shows the correct time to have bought
Amgen at $60¡Xin March 1990¡Xbefore it jumped more than sixfold.

How Does a Stock Go from
$50 to $100?

As a final appeal to your trusty common sense and judgment, it should
be stated that if a security has traded between $40 and $50 a share over
many months and is now selling at $50 and is going to double in price,
it positively must first go through $51, $52, $53, $54, $55, and the like,
before it can reach $100.

Therefore, your job is to buy when a stock looks high to the majority
of conventional investors and to sell after it moves substantially higher
and finally begins to look attractive to some of those same investors.
In conclusion: Search for corporations that have a key new product
or service, new management, or changes in conditions in their industry.
And most importantly, companies whose stocks are emerging from
price consolidation patterns and are close to, or actually touching, new
highs in price are usually your best buy candidates. There will always be
something new occurring in America every year. In 1993 alone, there
were nearly 1,000 initial public offerings. Dynamic, innovative new com-
panies¡ bundle of future, potential big winners.

(Excerpt from 'How To Make Money in Stocks')