Page 557 - How to Make Money in Stocks Trilogy

20

• C HAP T E R •

Important Time-Tested Proven

Rules and Guidelines to

Remember

1. Don’t buy cheap stocks. Buy mainly Nasdaq stocks selling at between
$15 and $300 a share and NYSE stocks selling from $20 to $300 a share.
The majority of super stocks emerge from sound strong chart bases of
$30 and up. Avoid the junk pile below $10.
2. Buy growth stocks where each of the last three years’ annual earnings
per share have been up at least 25% and the next year’s consensus earn-
ings estimate is up 25% or more. Many growth stocks will also have
annual cash flow of 20% or more above EPS.
3. Make sure the last two or three quarters’ earnings per share are up a
huge amount. Look for a minimum of 25% to 30%. In bull markets,
look for EPS up 40% to 500%. (The higher, the better.)
4. See that each of the last three quarters’ sales are accelerating in their
percentage increases or the last quarter’s sales are up at least 25%.
5. Buy stocks with a return on equity of 17% or more. The outstanding
companies will show a return on equity of 25% to 50%.
6. Make sure the recent quarterly after-tax profit margins are improving
and are near the stock’s peak after-tax margins in prior quarters.
7. Most stocks should be in the top six or more broad industry sectors in
IBD’s daily “New Price Highs” list or in the top 10% of IBD’s “197
Industry Sub-Group Rankings.”

424