Third In A Series It would be nice to have a crystal ball that lists the stocks that will be this year's big winners, wouldn't it? Alas, crystal balls have their proper place only in psychics' rooms and Harry Potter movies.
In the real world, investors can benefit from a mechanical screen of stocks that are outperforming the broader market and have the potential to jump to new highs en route to outstanding gains.
IBD research has shown that when a stock forms a key chart pattern, such as a cup with handle, then shoots out of that base to new highs in thundering volume, the probability of making gains of 20%, 50% or more over a relatively short period of time is at its greatest.
Why? Big runs occur because demand for that stock is swamping supply. Think of IBD Stock Spotlight as the screen to help you find stocks ready to make that big run.
A stock that doubles or triples in price must first possess the power to make new highs soon after the breakout. Spotlight acts as a wide net that helps you capture these emerging leaders, often while they are still in their bases.
You'll notice that stocks making this feature may be large cap or small cap; trade millions of shares daily or fewer than 400,000 shares daily; either be a veteran name on Wall Street or a new issue.
What they do have in common is an enviable combination of good fundamentals and unusual relative price strength. Each mini-chart shows EPS, RS and Composite Ratings and other relevant data. In Friday's IBD, the lowest Composite Rating was a 90 for AutoZone (NYSE:AZO - News); 10 others had a 99, five had a 98.
Remember: This is not a buy list, but a source to sculpt a watch list. The column next to the charts will help you pinpoint the right time to buy and if any sell signals have appeared.
When Select Comfort (NASDAQ:SCSS - News) was showcased in the Nov. 22 Spotlight column 1, the mattress store chain had already surged out of a deep, jagged base. But it soon flashed new buy points, such as a rebound off the 10-week moving average 2, and a breakout from a new cup with narrow handle 3.
Other leaders featured in Spotlight before or just as they broke out included Tractor Supply (NASDAQ:TSCO - News) (Nov. 25), Sturm Ruger (NYSE:RGR - News) (Dec. 9) and SolarWinds (NYSE:SWI - News) (Dec. 16).