Solving the Stock puzzle

1.Is the company’s current quarterly earnings per share up at least 25%?
2.Are the percentage increases in profits accelerating compared to recent quarters?
3.Does it have six to twelve quarters of significant earnings increases up 50%, 100%, even 200% or more?
4.Is the next quarter’s consensus earnings estimate up a worthwhile amount?
5.Have earnings in the past few quarters been higher than expected?
6.If it’s a growth stock, is each of the last 3 years of earnings up an average of 25% or more per year?
7.Is the company’s Earnings Per Share Rating 80 or higher?
8.If it’s a turnaround stock, does it have two quarters of strong earnings increases or one quarter that is up so much that the 12 months earnings per share are back to their old peak?
9.If 2 or more quarters have turned up, are the trailing 12-month earnings near or above the peak of the prior couple of years?
10.How much are the consensus earnings estimates up for the next 2 years?
11.Does the company have six to twelve quarters of strong sales growth?
12.Has that growth rate accelerated in recent quarters?
13.Is the current quarter’s after-tax profit margin at or close to its peak?
14.Has there been a general trend of profit-margin improvement over many quarters?
15.Are the company’s margins among the best in its industry?
16.Is the annual pre-tax profit margin 18% or more? (For retailers it’s alright to have lower margins)
17.Is the return on equity 20% to 505 or more and is its ROE among the very best in its industry?
18.Is its Sales+ Profit Margins + ROE Rating an A or B? That would place it among the top 40% of all stocks in terms of sales growth, pre-tax and after-tax profit margins, and return on equity.
19.Does the company’s management own the stock?
20.Is the stock in a quality price range? Quality comes at 16$ to 150$ for Nasdaq stocks and 20$ and above for NYSE stocks. Leaders like Cisco Systems, Wal-Mart, Microsoft, PeopleSoft and Amgen broke out of their beginning chart bases many years ago between 30$ and 50$ per share – before they had giant price advances. Price is a basic reflection of quality.
21.Is the stock part of a historically winning industry group such as retail, computers, technology, drug and health care, or leisure and entertainment?
22.Is it in one of the Top 5 groups? Check the “52-Week Highs and Lows” feature on the Industry Groups page for the top 5 performing groups.
23.Do Investor’s Business Daily’s small index charts on the Industry Groups page show the current market favors big-cap or small-cap stocks? Go with the flow and do not fight current market trends.]
24.What broad economic sector is the market favoring? Consumer or high-tech? Growth or cyclical? Defensive (food, utilities)? New or older more established companies?
25.Does the company’s product save money, solve a problem, or save time with new technology?
26.Is it a new drug or medical technique?
27.Is it widely needed or liked?
28.Is it a product that encourages repeat sales?
29.Is the company’s backlog of unfilled orders expanding?
30.At what percent capacity is the company operating?
31.What is the company’s expected rate of future expansion?
32.Have one or two of the smarter, better-performing mutual funds bought the stock recently? Better institutions do extensive research before buying.
33.Do you really understand and believe in the company’s business? Have you seen or used its product or service?
34.Potential winners will have strong earnings and sales growth, increasing profit margins and high return on equity (17% or more) and will be part of a leading industry group.
35.Investor’s Business Daily’s proprietary data and the IBD SmartSelect Corporate Ratings will help you pick winning stocks.
36.Check Daily Graphs Online to spot which of your prospects are forming a sound pattern and are under accumulation or professional buying. They must be near a proper buy point.
37.Analyze the week-by-week price and volume action. Write down the price at which you will begin buying the stock. After your initial purchase, identify a price area (maybe when it goes up 2.5 to 3%) at which you will add a small amount as a follow-up buy if it continues to perform well.
38.If the stock drops 8% below your exact initial buy point, protect yourself against a possible larger loss by selling at the current market price.
39.You want an increase of 50% or more in trading volume on the day you begin buying with the stock breaking out of a sound base.
40.Is the chart pattern a “cup with a handle”, “double bottom” or “flat base”? If it is not any of these, it may be faulty and failure-prone.
41.Is its Relative Price Strength Rating 80 or more? Is the relative strength line on the chart in a definite uptrend?
42.Keep adding to your best-performing stocks and reduce or sell your worst performing ones.
43.Check a long-term monthly chart to see if stock is also emerging out of a long-term base over a number of years.

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