7/14/2009

How I use Investor's Business Daily to find profitable ideas


Investors Business Daily is a newspaper dedicated to growth and momentum investing. Everyday I prepare 1 page note from IBD. 99% of my big winners have come from my IBD notes.
Besides IBD newspaper subscription I have a subscription to their other services:
  • Dailygraphs
  • Industry Groups
  • Screen Center

Here is what I look at everyday.
  • In screen center there is a scan called Sector Leaders. I daily put those stocks in a watchlist in Telechart. These are stocks with same characters as past 500 best movers in the market. IBD follows a historical precedent analysis as their basic methodology. They have studied 500 stocks which have made best move in a market and found characteristics of them. The theory is to scan for such stocks in current market.
  • 60 top stocks from 20 groups. Everyday I create a list of top 3 stocks ranked by composite rating in top 20 groups and put it in Telechart watchlist. Sector is very important in stock selection. Biggest winners tend to be from top 20 to 25 sectors. Sector moves persist for long time. Especially growth sectors stay in top 20-30 for months in the 2003 to 2007 bull market. Steel, Energy, Fertilizer, Metal, Casino, shipping sectors were in top 40 sector for years during the last bull market. Most big winners in that market came from those sectors.
  • Big Picture: This is must read. It is one of the best analysis of overall market action and growth stocks and sectors. I always look at Leaders up and Down which is in a box in Big Picture column.
  • Stocks featured on first page. Pay close attention to them. The real big winners , the kind which make 400 to 1000% move will be featured often on these pages. Many times months before they make big move. For example both ARO and BKE have appeared on front page for many months . They are two of the best retail stocks currently from growth perspective. Both retailers have had good growth in recession. These are real growth stock which have something that customers like currently.
  • A2 . This page is where you will find EP ideas. It highlights major earnings and other news and stocks with catalyst. This is where you will find "After the Close" where last night earnings are highlighted.
  • Leaders and Success: mostly motivational stuff.
  • Internet and Technology. IBD studies show big winers come from drugs and medical, computer, communication, software, specialty retail, and leisure and entertainment. So this page covers those industries.
  • Your Weekly review: This appears every Friday. It looks at stock with 85 plus EPS and RS rating and which are within 15% of 52 week high. Each stock box if you read carefully has IBD calculated buy point. That is why you will see a sudden pop in prices once those by points are crossed. Black bordered stock are at buy point according to ID buying criteria. I do not use IBD buying criteria. I only look at stocks with 100 plus EPS in this list.
  • IBD 100 list appears on Monday. It has vast following so a breakout on such stocks can be good short term trades. In recent 3-4 months this list has not performed well. It has been under performing the market. Otherwise it beats market by wide margin. There are wild theories about how IBD adds stock to it and why stock drop after they make this list. As long as people believe in that it s good. The list is simply a algorithm which picks stocks which match certain historic winners profile. There is also mini industry of people who game addition to the list by predicting which stock will make it to the list. All these games are for small gain. What you have to understand is the list is computer generated list , it is not a "timing " list. stocks on the list match characteristic of past winners but they may not be at buyable levels. Again I mostly look at 95 plus EPS stock in this or those with 100% plus EPS. I have done a big piece on how at the end of the day which stock will make it to the list is based on price momentum and so one can just use a MDT method and not waste time on these if you are looking for 20% profit trade.
  • IBD 200 list appears on Thursday. It takes top 200 stocks ranked by composite rating. It does not use price cut off like IBD 100 does. Again this is momentum based list. You can use MDT scan and get similar results. See my article "why you should not trade ibd 100 and 200" for detail about the reason.
  • The New America: see the small box on top of this page. It will highlight " leading new Issues" The 10 IPO's featured on this page during a bull market tend to be the cream of the IPO universe. I have found several 50% plus opportunities in this list. Again I maintain a watchlist of these. In recent months there wee very few IPO's. But IPO's are easiest to trade and you can make 20 to 25% in IPO's very easily if you keep a eye on them. The companies featured on this page are growth companies mostly. They are either large cap growth or small cap growth. A company will appear here if it has recent earnings acceleration. or sector has moved higher, or funds increase position. Stock which appear here tend to make big move not necessarily immediately but make moves 5-6 month after their appearance. What I do is focus on interesting stories from these. I look for stocks with 40% plus earnings only out of these. Once I read the article, if I think the stock is good story, I put a note on the Telchart chart saying New America. So that when the stock appears in scan I know about it. Similarly I pt eps figures on stock with 100 plus earnings and sales. Out of this page stories only few are worth following and I track only those stocks.
  • Mutual Funds Page: I always research the Top New Buys. Again I am interested only in stock with 40% plus EPS growth or 50% plus sales growth. I also look at their top 10 holding for stock with 40 plus EPS.
  • Largest positions of funds in value and growth index: in this 20 stock list I look for growth stock with 40% plus earnings and 100% plus preferably. These are the kind of stocks where I don't mind putting 10% on EP.
  • Investors Corner: Always a good read.
  • IBD industry ranking. I have subscription to Industry Group product, so I do not use this page.
  • IBD Industry Themes will give you insight in to why certain sector is going up and whether it is sustainable move.
  • 2500 leading stocks. Pay attention to stocks at top of each sector. GMCR, QSII, VPRT, HMSY, TNDM are currently highlighted stocks.
  • NYSE and Nasadq stocks in the news. These are stock forming bases and approaching IBD buy point. I always look at this for , you guessed it right, 40 plus EPS stock.
  • Base Reader and International leaders is good source of some ideas.
  • IBD's 20 rules for investment success. I know eah of them , word for word. I can tel them even in my sleep. Best set of rules for growth investors.
  • Stock Do's and Don't. Most people get in to trouble on IBD stock because they do not understand where to buy these stocks. Simple rule well explained:
    • do not buy a stock up 5% or more from sound base
    • buy in proper buy area
    • buy when stocks first time hits 10 day ma
    • cut losses at 8%
    • learn when to take 20% or100% profit
    • investigate before you buy
  • Company Earnings Report: I look for stocks with 100% eps growth.
  • Total time required to do this everyday around 30 to 40 minutes.
  • End result everyday a one page summary. Which I do at night and look at again in the morning.
  • Objective: To find stock likely to make 50 to 20% move in a quarter or less time frame.

  • Here is a summary for today and yesterday:

    SectionKey PointsAction
    The Big PictureBank Stocks lead stocks higher
    Volume was higher
    All indexes up 2% plus on higher volume.
    IBD100 lagged
    leaders up: nflx ll dcp stec snx sqm rnow vit
    leaders down: ady din cprt
    To the pointININ: 22-26 against 14 guidance.
    12 million float. 94 eps rating. Sector rank 26.
    38 to 40 funds increase.
    tleo ebix rnow in same sector.
    watch
    Screen of the dayEPS beater by wide margin
    cce din cri safm tisco eqix eclp vrx mpwr tdc
    tecd ej cpa im pfcb ammd irm sjm mvl
    telechart
    Leading New Issuescyou bpi open rst mjn dgw lope swi
    The New AmericaBWY: Packaging company
    lifts earnings by cutting cost
    Not a growth story
    IBD Big Cap 20negative action helps some stocks form base
    I look for 100% plus EPS stocks in this.
    None in this list.
    Largest Positions of funds in growth indexwind swn msft jpm ilmn brcm slab ibm pm fslr
    axys pcp aapl epd wfc lkqx esrx wmt rsg cpts
    CPTS is new in the list
    Female contraceptive company
    72 eps rating
    64 to 83 funds increase in a year
    In a bull market this list tends to have mostly growth stocks.
    Defensive growth is dominating currently.
    If WMT is growth stock then I am Brad Pitt !
    watcvh
    cpts
    The investor's cornerMost buy points occur below new high
    Buy near high. Within 15% of high. Volume should be up at least 40%
    compared to average volume (50 days in IBD case)
    buy near 50 day ma on pullback. second buy point.
    IBD's 20 rulesStudy in detail.
    2500 leading stockslook at highlighted stocks at top
    fuqi gmcr lft hmsy vprt bidu syna tndm
    list will be similar to Sector Leaders list in Screen Center
    These stocks according to IBD match previous big winners profile.
    telechart
    The Base ReaderWMS forming first base.

    For yesterday (monday Paper)
    SectionKey NotesAction
    The Big PictureLow volume day
    Market under pressure
    To the pointECRI sees US economy recovering.
    Internet and Technology2010 Shanghai World Fair
    Will attract 70 million visitors
    Will benefit hotel industry
    CTRP LONG HMIN
    Leading New Issuescyou bpi rst open dgw mjn swi lopeTelechart
    The New AmericaMDAS : Med Assets
    Software and consulting to hospital
    Purchasing to hospital
    Lowers cost for hospitals
    99 composite rating
    27 million float
    0/34 eps/sales growth
    53 to 98 fund growth in a year.
    had a ep in june
    Not something I would get very excited about.
    At best a decent growth story.
    Sector and funds buying tend to drive IBD selection
    of The New America companies to profile.
    Not all profiled companies are worth getting excited about
    Managing for SuccessCEO ranking system predicts future market moves
    The IBD 100 tracks % of stock owned by management.
    Industry SnapshotSemi see new sign of hope
    Sector ranked no 5
    We currently hold no1 ranked stock in the sector for months: STEC (it is up more than 100% from entry)
    Other sector stocks: TSRA ARMH
    TSRA
    Largest Positions of funds in growth IndexWIND SLAB MSFT PM FSLR BRCM ESRX IBM JPM CBST
    AXYS SWN AAPL EPD ILMN LKQX PCP WMT RSG WFC
    Telechart
    IBD 100Black Bordered Stock GMCR TLEO CMG MFE
    CTRN: Black focused retailer. 50/1. 30% plus eps growth for retailers is very good.
    If you see the performance of IBD 100 to S&P from 5/2/03 to yesterday
    S&P -5.3%
    IBD100 57.3
    A method like EP allows you to get in to some of the
    big movers out of IBD100 right at beginning of their big move.
    5 to 10 stock out of IBD100 tend to dictate the index performance
    They mostly tend to be one with 100% plus EPS growth and high margin and roe
    If you search the Worden and IBD forum you will see someone has
    developed a method to further reduce the IBD100 to just 4-5 stocks and then
    hold a portfolio of them.
    watch
    gmcr
    teleo
    ctrn
    cmg
    IBD Industry ThemesAMGN: a potential blockbuster denosumab 7 billion potential
    1 billion float. I find it hard to get excited about such huge float companies.
    2500 leading stocksFUQI GMCR LFT HMSY VPRT BIDU SYNA
    Sector Leaders Screengmcr lft pwrd fuqi snda bidu cyou asia athn alxn
    China is the theme
    Telechart
    Industry SectorsTop 3 stocks from top 20 sectors Telechart
    Custom Screen Wizard Paid Service100EPS+100Sales Scan
    96composite+40eps+25 sales scan
    Long term EPS winners Scan
    Top 20 sector 96+ composite scan
    Top 40 sector 40 EPS+25sales Scan
    telechart
    • It takes me 30 to 40 minutes to do this .
    • Earlier it used to take 15 to 20 mintes.
    • If you do this daily you are on top of every growth stock opportunity in the market.




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