If you really needed to find a needle in a haystack, the job would go a lot quicker using either a high-power magnet or a high-quality metal detector. Finding top-quality stocks is a similar challenge.
The Nasdaq lists more than 3,000 companies, and the NYSE another 2,800. Winnowing them to a few leading candidates is much easier using a few high-power tools and following some simple guidelines.
One guideline starts with focusing on the stock’s status within its industry group.
IBD research shows that as much as 37% of a leading stock’s price movement owes to its industry group. Another 12% is linked to the strength of its sector, a broader designation made up of related industries.
So, first things first: Choose only stocks in strong industries and sectors.
Next, figure out if a stock is ahead of others in its own industry group in terms of earnings and revenue growth, relative price strength and accumulation of shares by institutional investors. If so, then it is a stronger stock, and it’s more likely to post stronger breakouts and rallies.
How do you discern those needles within the stacks of hay?
The easiest way is to go to Investors.com and start with the prescreened lists on the E-Tables page. Most stocks on the IBD 50, New America, Big Cap 20 and 85-85 lists have been vetted and are at or near the top of their respective industries.
To see how each ranks within its industry group, click through to IBD’s Stock Checkup function. The feature at the top of this page allows you to sort the top stocks in the industry group according to proprietary IBD ratings, including Composite, Earnings Per Share, Relative Strength, SMR (sales growth, profit margins and return on equity) and Accumulation/Distribution.
To see how the industry group itself ranks, mouse over the “Research” heading near the upper left-hand corner of the page. It should give you a pull-down menu. At the lower right-hand corner of that menu, you will see IBD’s 197 industry groups. Follow this link, and it will give you the current rankings for the groups, plus the change in the industry’s status over the past three- and six-week periods.
You can also plug into the Stock Checkup function to find the industry group and relative position within that group of any stock you might be researching. It is a powerful, helpful and very time-efficient tool.
Subscribers to MarketSmith have access to even more high-test offerings.
In the lower-left menu of a MarketSmith chart, click on the Markets/197 Industry Groups heading. It opens a database that you can sort by industry group ranking and other factors. To find stocks within the group, click on the industry group name.
It gives you the collective price-performance chart of stocks in the group. Go to the tab running down the right-hand side of the chart that reads “Related Information.” Clicking on it gives you several options, including “Stocks In The Group.”
Clicking that option opens a list of the group’s stocks, sortable by various IBD ratings and other factors.
That should be more than enough to give you a running start. Be tenacious, and best of luck!