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Following The Leaders Is Way To Reap Windfall Profits

One could argue that the L in is the lynchpin of IBD's investing system. It stands for leaders — the best stocks culled from thousands on offer.

Finding just a handful of true leaders in the early stages of their big run-ups can bring great wealth to the disciplined investor. Baidu (BIDU), Apple (AAPL) and Alexion Pharmaceuticals (ALXN) are just a few recent examples of top stocks that racked up huge returns.

"The top one, two or three stocks in a strong can have unbelievable growth, while others in the pack may hardly stir," wrote IBD founder William O'Neil in ".

Leading stocks have the best fundamentals and sound chart patterns. The shares are in demand by mutual funds and other big investors. Why? Top companies offer unique products and services that take market share away from their competitors.

"By number one, I don't mean the largest company or the one with the most recognized brand name," O'Neil wrote. "I mean the one with the best quarterly and annual earnings growth, the highest return on equity, the widest profit margins, the strongest , and the most dynamic stock-price action.

The Big Picture column and the Market Pulse box that appear in IBD each day focus on the action of leading stocks.

Use the Timesaver Tables, the Stock Spotlight and IBD's Smart Tables, which focus on stocks with superior fundamentals.

Each stock is accompanied by key metrics, such as the Relative Price Strength Rating. The RS rating is the quickest way to create a list of promising candidates. A rating of 99 indicates the stock is outperforming 99% of all listed companies over the past 52 weeks. An RS Rating of 50 shows that it's outperforming only half of all stocks. Eliminate those with an RS Rating of 85 or lower.

The Composite Rating, Accumulation-Distribution Rating and the Rating can also be used to screen for the best stocks. It's not unusual to see leading stocks post triple-digit quarterly earnings and sales growth before starting their big runs. Many also show strong prior uptrends that have outperformed most other stocks.

FleetCor Technologies (FLT) had strong fundamentals when it broke out above a 41.40 cup-base on Aug. 15, 2012. Profit during the quarter of its jumped 48%, topping the healthy 28% increases in each of the prior two quarters. Sales growth was similarly strong.

At the time, the stock scored a 98 Composite Rating, a 97 EPS and a 91 RS. The day after the breakout, FleetCor appeared in the Market Pulse box, Stock Spotlight and in the Time Saver tables, highlighting it as a leader.

FleetCor has moved up steadily along its 10-week line. Investors who bought at the breakout are up 64% in just six months so far.