Expectational Analysis Fundamentals: New Products (eg. iPod, iPhone, Viagra)

New Products

One key fundamental driver for a stock is new products. A sign of growth and innovation, these new developments by a firm can create buzz about a company, increase revenue, and lead to new deals with other companies as well as potential mergers and acquisitions.

A classic example of the effect a new product can have is Pfizer's (PFE) introduction of the drug, Viagra. Even with a big-cap name, the impact of a new product can affect the shares price action significantly. In late March 1998, the Food and Drug Administration (FDA) approved PFE's pill for the treatment of impotence. In anticipation of the approval, PFE rallied from approximately 25 to 30 (adjusted for PFE's three-for-one stock split in July 1999) during the 2 months prior to approval. Even after the approval by the FDA, option players had ample opportunity to profit, as the shares rallied an additional 10 points in the next month! The introduction of Viagra has been one of the most successful drug launches in recent history.

Another story of a new product's success benefiting a company and investors was from American computer maker Apple (AAPL). The once struggling company had hit a wall in its competition with a personal computer market dominated by machines running Microsoft's Windows software. While the October 2001 release of the now ubiquitous iPod came and went with little fanfare, the devices soon gained so much popularity that the company re-released the iPod with support for Windows-based computers in July 2002.

At the time, Apple shares were trading in the $7 per shares range, a far cry from their lofty $100-plus valuation they enjoyed as of late 2007. The adoption of these early iPods was no where near the fanatical buying sprees of recent years, but AAPL stock still vaulted more than 600% since the advent of Windows compatibility for the devices through the introduction of the sixth generation of the iPod in October 2005 - which introduced video capabilities.

While the early iPod years are an excellent example of how a new product can propel a seemingly up-start company into the stratosphere of the Wall Street elite, the later developments of the iPod Video and, ultimately, the iPhone, are prime examples of how new products can move even large-cap stocks sharply higher. Following the release of the video edition, Apple received some lukewarm attention, but that changed with the advent of the iPod Mini, which renewed interest in the company again.

But this was just the tip of the iceberg, as Apple hinted at a potential iPod-based phone, or iPhone, that could be on its way. The ensuing frenzy surrounding the device grew exponentially, like the shares themselves, until the release date on September 5, 2007. Furthermore, the wide adoption of the Apple iPhone evident in early sales figures helped push the stock to even loftier heights. In the end, from October 2005 when the iPod Video was released, through September 2007, Apple shares surged more than 187%.

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