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How I Use IBD to Find Potential Winning Stocks 343

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The IBD SmartSelect Corporate Ratings
The one line of information in the IBD SmartSelect Corporate Ratings is
much more powerful and meaningful than anything you’ll find in standard
price tables. These ratings, which have been proven to be the most predic-
tive measurements of a stock’s possible future value, will narrow your search
from over 10,000 stocks to the top investment prospects.
You’ll find these ratings are like a condensed statistical summary financial
report that looks at the fundamental strength or weakness of a stock. They
are also a well-rounded evaluation of each company’s general health. Most
importantly, along with daily and/or weekly charts, these ratings will help
you find better stocks. Let’s examine each element.

Earnings per Share Rating Indicates
a Company’s Relative Earnings Growth Rate
Strong earnings growth is essential to a stock’s success and has the greatest
impact on its future price performance. The first absolutely vital component
of the SmartSelect ratings is the Earnings per Share (EPS) rating, which is
labeled 1 in the chart.
The EPS rating calculates the growth and stability of each company’s
earnings over the last three years, giving additional weight to the most
recent few quarters. The result is compared with those of all other common
stocks in the price tables and is rated on a scale from 1 to 99, with 99 being
the best.
Example: An EPS rating of 90 means that a company’s bottom-line earn-
ings results over the short and the long term are in the top 10% of the
roughly 10,000 stocks being measured.
This one number gives you the relative earnings performance for publicly
held companies and the possible prospects for their stocks. It’s an objective
measure you can use to compare the audited results of one company to
those of any other; for example, the earnings growth of IBM to that of
Hewlett-Packard, Lockheed, Loews Companies, Wal-Mart, or Apple. Earn-
ings estimates are not used in the calculation because they are personal
opinions, which, as you know, might be wrong and do change.
Since earnings power and earnings growth are the most basic measures of
a company’s success, the EPS rating is invaluable for separating the true
leaders from the poorly managed, deficient, and lackluster companies in
today’s tougher worldwide competition.
The EPS rating is also more meaningful than the widely followed For-
tune 500 lists that rank corporations by company size. Size alone rarely
guarantees innovation, growth, or profitability. Large companies that are