Stock tips have always been a dime a dozen in the stock market. Some are good, but plenty more are bad. A great way to validate them is with the IBD Stock Checkup tool at Investors.com.
IBD Stock Checkup provides a fundamental and technical breakdown of a stock. Specifically, it looks at the characteristics that historically set apart the most successful stocks, such as excellent earnings growth and superior margins. Put them all together, and you have a quick way to tell if a stock you’re researching measures up to past stock market winners.
At the top of Stock Checkup, you can see where a stock ranks in its industry group based on its Composite Rating, Earnings Per Share Rating, Relative Price Strength Rating, Accumulation/Distribution Rating, and SMR Rating. Focus first on the stocks with top Composite Ratings.
Below that is the IBD Stock Checklist, which gives a stock pass or fail marks based on those crucial fundamental and technical metrics. A green circle basically means pass, yellow is neutral and red is fail. It’s good to see as many green circles as possible, but don’t automatically dismiss a stock because it doesn’t measure up in some areas. Each term has a link that explains what it means.
Don’t buy a stock just because it passes most scores and has high ratings. You still should study its price and volume chart, and know something about the business. The Checkup is intended to be a way to filter stocks, rather than picking them for you.
Apple (AAPL) gets generally high marks from IBD Stock Checkup, but it gets a red circle because it’s three-year earnings growth rate is below 25%. But for a company with a market capitalization of just over $2.4 trillion, a three-year earnings growth rate of 17% is pretty good.
Apple also gets a red circle because it shows zero quarters of accelerating earnings growth. But that’s only because Apple’s impressive 100% EPS gain in the June-ended quarter was smaller than an even larger 119% EPS increase the previous quarter.
One of the biggest benefits to IBD Stock Checkup is that it uncovers breadth of leadership in a particular industry group. The more leadership in the group there is, the better. Basically, a group with good leadership will have at least several stocks with Composite Ratings of 90 to 99.
Stock Market Leaders
Security software stocks have been leading the market for some time now, and the growth runway still looks good for several top stocks in the group.
As of Wednesday, five stocks in the group had Composite Ratings of 94 or higher, according to IBD Stock Checkup.
Fortinet (FTNT) was the top-ranked security software stock with a Composite Rating of 98. It’s been trending above its 10-week moving average for several months, but it’s too extended to consider buying at current levels. The best thing Fortinet could do now is form a new base.
Mimecast (MIME), meanwhile, has the second highest Composite Rating in the group. It’s in a good technical setup ahead of its earnings report Aug. 3 before the open. The stock is trading just below a 57.32 handle buy point. The mark against Mimecast is that a lot of stocks in the group have broken out already, and Mimecast is still basing.
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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