While identifying the stock market's best stocks to buy and watch sounds like a daunting task, investors can use the IBD Composite Rating to simplify the research routine.
XThe IBD Composite Rating is a blend of the other five IBD stock ratings: the EPS Rating, Relative Price Strength Rating, Accumulation/Distribution Rating, SMR Rating and Industry Group Relative Strength Rating. The Composite Rating helps investors easily measure the quality of a stock's fundamental and technical metrics.
The EPS Rating measures the growth and stability of a company's earnings over the past three years, with extra weighting put on the most recent two quarters. The result is assigned a rating of 1 to 99, with 99 being best.
The RS Rating gauges a stock's price performance compared with all other publicly traded stocks over the past 12 months. The rating is set on a scale of 1 to 99, with 99 being the best possible.
The A/D Rating tracks the amount of institutional buying and selling over the past few months. Stocks with the greatest accumulation have A+ ratings.
The SMR Rating examines a company's sales growth, profit margins and return on equity. The SMR Rating features an A to E scale where A represents the top 20% of companies in terms of SMR scores.
The Industry Group RS Rating assesses the overall strength of a stock's industry group, utilizing an A+ to E scale.
IBD Live: A New Tool For Daily Stock Market Analysis
EPS, RS Ratings Receive Special Weightings
But it's not an equal weighting. The EPS and RS Ratings, along with the stock's distance from its 52-week high, receive special weightings. These three factors get at the heart of finding special growth companies that are leading their peers and trade near new highs.
Focus on stocks with Composite Ratings 90 or higher. Those with ratings of 95 or higher deserve special consideration. The IBD Stock Checkup lists the stocks with best Composite Ratings in their industry group, a good way to find industry leaders.
Remember, don't just buy any stock because it has a strong Composite Rating. Make sure the stock is breaking out past a proper buy point in a base formation, like a cup with handle or double bottom.
Top Stocks To Buy And Watch: Microchip Technology
Check out IBD MarketSmith's Near Pivot list. It is an easy way to quickly identify some of the top growth stocks near potential buy points. The premium list overlays the Pattern Recognition (real-time chart pattern analysis) over the Growth 250 (an institutional-quality list of top growth stock ideas) to create one list of top stocks near potential buy points.
On the list Monday, Arch Capital Group (ACGL) was forming a cup with handle with an 82.18 buy point. Its Composite Rating was a sterling 99.
This article was originally published April 9, 2021, and has been updated.
YOU MAY ALSO LIKE:
Top Growth Stocks To Buy And Watch
Learn How To Time The Market With IBD's ETF Market Strategy
Find The Best Long-Term Investments With IBD Long-Term Leaders
MarketSmith: Research, Charts, Data And Coaching All In One Place
