Any good craftsman's workbench offers up indecipherable tools that nevertheless serve a vital purpose.
Once a craftsman learns how to put those specialized tools to use, he becomes more skilled.
One of the specialized tools on IBD's workbench is the Composite Rating.
Part of IBD's SmartSelect line of stock ratings, the Composite Rating gives an instant overview of a stock. It combines the , Relative Price Strength Rating, SMR (Sales + Margin + Return On Equity) Rating and Accumulation-Distribution Rating as well as recent price action into one gauge. It points a finger toward stocks with strong characteristics.
Despite this breadth — maybe because of it — it's important to remember that the Composite Rating is just a starting point. It identifies stocks worthy of deeper investigation. Even a best-possible Composite Rating of 99 (1 is the lowest) is never a buy recommendation — at any time.
The highest Composite Rating in the group isn't always the right stock to buy. Do your research and find the proper entry.
You can find Composite Ratings in the mini-charts of the IBD 50, Your Weekly Review, Big Cap 20 and other lists. They are also listed in IBD's Smart NYSE & Nasdaq Tables.
Online, you can find Composite Ratings using Investors.com's Stock Checkup function. In addition, this will show you the top five Composite-rated peers in a stock's .
You can also go to the Screen Center at Investors.com and click on any of the lists. When the list pops up, go to the "View by" box just below the title. Both the Fundamental and SmartSelect options turn up the Composite Ratings for all stocks on the list.
These well-vetted lists allow you to quickly move past the general focus of the Composite Rating into more tightly focused fundamental investigation.
Among the first things you'll need to verify are a stock's average daily trading and debt levels, two things Composite Ratings do not necessarily take into account. You will also need to verify that a stock's chart status is constructive.
As an example, type Cerner (CERN) into the Stock Checkup. This shows a Composite Rating of 91 for Cerner. Anything above 90 is easily in the strike zone. Cerner finished Friday nearly 5% past an 89.02 three-weeks-tight pattern entry point.
The top Composite Rating in Cerner's medical software industry group is Athenahealth (ATHN), with a 93. Athenahealth is in many ways a good-looking stock, trading near after clearing a seven-month base.
But that base was 42% deep, a risk-adding element not directly accounted by the Composite Rating. The ratings quickly fall off in the same group. MedAssets (MDAS) is next in line with a below-par 80 rating.