Go ahead and Google "investing method." What will you find
As the search results show, there are almost as many approaches to investing as there are stocks listed on the market. The key is to choose one approach, learn it well and use that as a base on which to build your relationship to the market.
investing starts here: current annual and quarterly earnings.
Research shows that the stocks having scaled up into winning runs over the past century shared one bold, fundamental characteristic: strong, and in some cases, accelerating growth in both quarterly sales and earnings.
Dell (DELL), Cisco (CSCO), America Online (AOL), Google (GOOG) and Apple (AAPL) are just a few examples of stocks that reported outsized earnings growth in the quarters immediately preceding the starts of their winning runs. William O'Neil & Co. research modeled the 600 best performers between 1952 and 2001 and found three out of four reported earnings increases averaging more than 70% in the quarter before they began their advances.
What about the 25% that did not average 70% earnings increases? Well, those turned in an average earnings gain of 90% in the quarter reported immediately after the beginning of their runs.
Such numbers, when reflected on both the sales and earnings lines, suggest a company has found its feet, connected with its customers and is notching up into a rapid expansion phase.
The question is, how do you go about finding stocks demonstrating such a sharp increase in growth
The E-Tables lists at Investors.com are good places to start. So are the IBD 50, Your Weekly Review and Big Cap 20 lists published in IBD.
Pay particular attention to the EPS, SMR and Composite ratings. The higher the rating, the more likely it is that the stock's sales and earnings are growing rapidly. Ratings above 90 are solid signs of strength.
If you have a specific stock of interest, you can plug it into the Stock Checkup function at Investors.com. This will give you a quick read on the stock's EPS and Composite Ratings. It also gives an array of specifics on quarterly earnings and sales performance to help you build a detailed picture of the stock.
There are cases where a stock is just shifting from losses to gains. This generally reflects in the Composite Rating before the , and is common among budding biotech and technology stocks. Alkermes (ALKS) is a current example, with six quarters of ramping sales and a 95 Composite Rating. Its EPS Rating is a relatively soft 82, because the company has only two consecutive quarters of earnings growth.
There are, of course, stocks that report phenomenal jumps in earnings, but go nowhere. Sometimes this is due to sales and earnings increases against easy comparisons in the prior year. When the company gets past this initial easy zone and runs up against tougher comparisons, the growth suddenly fizzles.
There are also many other red flags to watch for. That is where the other elements of the CAN SLIM acronym come into play. The more positive hits you get across the vetting blueprint, the more your risk is reduced and the more likely it is that you are looking at a winner.
- Investment & Company Information