Tuesday, February 06, 2007

How to pick a stock that has good potential for short term growth

I pay for a service from Investors Business Daily that has a section called "IBD® eTables". With eTables you can quickly filter and sort hundreds of stocks and then export the results to Excel and continue to use additional filters in whatever way you want. I won't get into my history with stocks or try to convince you that this how to pick em. There are countless ways to choose stocks, but you need to have a goal in mind and then try and find a method that works for you. While we're on the subject, here are 20 good rules to follow from IBD no matter who you are or what your goals are. I hope my method at least serves as a starting point for you, maybe more. Need some inspiration? Visit Mr. Market! He is huge, bring him your finest meats and cheeses!!!

Try these steps, write down the stocks and their current price, then follow them for 4-6 weeks and see what happens. Looking for a good free portfolio tracker that will track your portfolio with ease? Try Google Finance and then find the "Portfolio" link.
  1. Go to "IBD® eTables" and select "Main Tables"
  2. Filter for "New High or up 1 point (Bold)
  3. Primary sort by EPS Rating and secondary sort SMR Rating
  4. Export to Excel
  5. Filter for stocks within 2% of their 52 week high
  6. Filter for stocks with RS greater than or equal to 95
  7. Filter for stocks with SMR Rating equal to A or equal to B
  8. Filter for stocks with Ind Group Relative Strength equal to A* or B*
  9. Focus on stocks with an EPS ranging from 80 to 86. Here's why.
  10. Don't forget to look at the PE and research it. Wikipedia has some useful info about the P/E ratio here. Wikipedia states, "It is probably the single most consistent red flag to excessive optimism and over-investment. It also serves, regularly, as a marker of business problems and opportunities. By relating price and earnings per share for a company, one can analyze the market's valuation of a company's shares relative to the wealth the company is actually creating."
  11. Go to http://finance.google.com/ and research the stocks that interest you. Read the news about it, look at the chart in different views, look at related companies and don't forget to look at the bottom left hand corner "More Resources".
What does Mr. Market's process try to do? Here's exactly what he says, "What this process is trying to do is to select a hot growth stock that has a little more juice left in it to get you that last 15% without being so hideously overvalued that it could drop like a rock. I don’t think I need to buy stocks with extended valuations to make a quick profit. There are stocks out there with good momentum that aren’t bad to hold if I make a wrong decision. I think my model finds them. My model has been successful in protecting me from real lemons. Preservation of capital is always important. Buying companies with real earnings protects me in the down markets. We all work hard for our money. It makes no sense to give it away. That’s why I believe it’s important to buy stock in companies with real earnings."

Have fun!