Proper research is one of the key factors in how to buy stocks the right way.
IBD offers investors ample help, from finding stock ideas to conducting fundamental and technical analysis. Today, we’ll focus on IBD Stock Checkup, a research tool to quickly analyze a stock’s strengths and weaknesses.
The tool takes a close look at key traits — such as earnings and sales growth, industry group strength and stock price action — then gives investors a quick way to see how it measures up with other stocks.
How To Buy Stocks? Start Here
To find it, click on IBD Stock Checkup under the Research menu at Investors.com. This brings you to a cartoon of a doctor with a clipboard. Enter the ticker symbol of the stock you wish to analyze.
You’ll see near the top of Stock Checkup five tabs: Composite Rating, Earnings Per Share Rating, Relative Strength Rating, SMR Rating and Accumulation/Distribution Rating. Clicking on each will show where the stock ranks in its industry group based on those ratings.
Below that is the IBD Stock Checklist, which gives the stock pass, fail or neutral marks based on models of successful stocks. A green circle basically means pass, yellow is neutral, and red is fail. So while many green circles are a good sign, don’t automatically reject a stock because it doesn’t measure up in some areas.
Likewise, don’t just buy a stock because it earns many green circles and has high ratings. You still need to study its price and volume chart. It’s also helpful to learn about the company’s business and industry, and recent articles are at the bottom of the Checkup. Also important is the general market’s outlook, because making money is much harder when indexes are under pressure or in a correction.
It’s best to first focus on stocks with a high Composite Rating, which is an overall score based on the other IBD ratings. The Composite should be your starting point.
Microsoft: A Long-Term Leader
The software giant gets an 85 Composite Rating, which puts Microsoft in the top 15% of all stocks. That’s yellow in Stock Checkup, since 90 is the minimum to earn a green circle. But it’s also the highest ranked stock in the desktop software group — and definitely good enough to dig further.
Microsoft’s EPS Rating, 93, is green. Here again it leads the group, as well as for RS Rating and SMR Rating. The Accumulation/Distribution, however, is red and a lowest possible E. That means more mutual funds are selling vs. buying shares.
Scroll down to the IBD Stock Checklist for more details. You’ll see mostly green circles under both the fundamental and technical sections. The few reds (aside from Accumulation/Distribution) are not as alarming as they seem.
For instance, one red circle is for decelerating earnings growth. But the latest 25% growth rate is still solid after four straight quarters of 32% or higher gains. Others, for EPS estimate percentage change and sales growth rate, are not too surprising given Microsoft’s size and long history.
But what should give investors pause is the Market Direction and Industry Group section. The current outlook, uptrend under pressure, is yellow. That means all stock purchases — not just Microsoft — are riskier than usual due to the market environment.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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