Page 1068 - How to Make Money in Stocks Trilogy

54 HOW TO MAKE MONEY IN STOCKS—GETTING STARTED

®
IBD SmartSelect Ratings
A big part of the Buying Checklist is making sure your stock gets passing
grades for IBD SmartSelect Ratings, which show how strongly a company
fits the CAN SLIM profile. You’ll find these unique ratings in Stock
Checkup on Investors.com and in the IBD Smart NYSE + NASDAQ Tables
(Chapter 7) in the Making Money section of Investor’s Business Daily.

It’s All Relative
With the exception of the Accumulation/Distribution Rating, each rating is
relative. In other words, they show how your stock compares to all other
stocks on the market.
That’s a huge advantage, instantly separating the leaders from the laggards.
For example, the Earnings-Per-Share (EPS) Rating goes from 1 (worst)
to 99 (best). A 95 rating instantly tells you the company is outperforming
95% of all other stocks in terms of both current and annual earnings growth.
A 99 Composite Rating means the company’s overall strength puts it in the
top 1% of all stocks.
Think how easy that is—and how much time it saves.
For example, we saw that big earnings growth is the #1 factor to look for
in a stock. With one glance at the EPS Rating, you know how your stock’s
earnings growth stacks up against every other company on the market.
As we go through the checklist, you’ll see what each rating measures and
the minimum grades to look for. While you never want to buy a stock just
because it has a high rating, these grades save you a tremendous amount of
time by identifying stocks that do—and don’t—have the CAN SLIM traits.

Unless otherwise noted below, ratings range from 1 (worst) to 99 (best).

Overall Strength
■ ✔ Composite Rating of 90 or higher

The Composite Rating combines all the IBD SmartSelect Ratings into one,
with more weight on the EPS and Relative Strength (RS) Ratings.
A rating of 90 or higher tells you that, in terms of overall fundamental and
technical strength, the stock is outperforming 90% of all other stocks.
A rating of 90 is the minimum. You’ll find the true market leaders have a
Composite Rating north of 95 and often have the highest-possible score of 99.