Stock Picking Lessons
June 28 2019 - Stock Picks: Lessons From Veeva, Nvidia, Netflix On How To Find The Best Stocks To Buy By Investors Business Daily
With thousands of publicly traded companies to choose from, finding the best stocks to buy and watch is no easy task. But following a simple buying checklist and regularly checking IBD's S&P 500-beating screens can help you put the best potential stock picks on your watch list.
The goal is to identify potential winning stocks like Apple (AAPL), Veeva Systems (VEEV) and so-called FANG stocks Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOGL) in the early stages of a big move.
As you'll see below, the most effective way to zero in on the best stocks to buy and watch is to focus on those with exceptional earnings growth that are breaking out of a chart pattern during a strong market uptrend. You can streamline that stock-picking process by using a simple three-step routine.
Be sure to also have sound rules for when to sell stocks since even the best stocks eventually falter, especially when the general market comes under pressure. The bear market of last year and the current downtrend are clear evidence of that.
Stock Picks: Focus On Strong Earnings Growth
Through a groundbreaking study of 100-plus years of market history, IBD identified seven common traits of winning stocks, with earnings growth being the most critical factor.
Over the last decade, the market's biggest winners confirm that finding. Top performers like Apple, Nvidia, Facebook, and Netflix all showed explosive, even triple-digit, earnings growth as their share prices rose dramatically.
So as you go through a buying check list to evaluate your potential stock picks, look for companies posting 25% or higher earnings growth.
Be sure to also use IBD Stock Checkup to check your stock's EPS Rating. You'll instantly see if the stock earnings a pass or fail grade for its quarterly and annual earnings growth.
Stock Picks: Look For Breakouts From Chart Patterns
Just because a company has stellar earnings doesn't mean it's a good time to buy its stock. Several other factors come into play, including the market trend and the chart action. You can significantly improve the performance of your stock picks — and reduce your risk — if you make sure the chart and the market are giving you the green light to buy.
Chart patterns serve as a launching pad for a stock's new climb. Also known as bases or consolidations, these patterns form after a stock has already climbed and is now taking a breather to hopefully set up a new run. The ideal time to buy a stock is when it completes that base and proves its strength by punching through a point of resistance in heavy volume.
The most profitable and common chart patterns to look for are the cup with handle, double bottom and flat base. Once you identify companies with strong earnings that are also forming one of these three patterns, you'll be well on your way to catching the best stocks to buy and watch.
Winning moves from Apple, Amazon, Veeva, Nvidia, Netflix and countless others in just the last few years proves this point. Virtually all of the market's biggest winners form one or all three of these patterns as they make their big climbs. See the chart below for how Nvidia stock launched what became a 750% gain over the next 29 months. Nvidia has since corrected sharply, as even the best growth stocks eventually do. That serves as a reminder of why investors also need to follow proven sell rules.
Veeva stock is another example. The medical software company rose 399% from a May 2016 breakout through April of this year. It was featured in the IBD 50 list of top growth stocks before it launched that move.
Apple, Amazon and Facebook may currently be in the process of setting up additional climbs.
Invest2Success Investment Stock Advisory Service
Free Trial - Receive daily low-risk high-reward SP500 NYSE Nasdaq buy-long and short-sell stock picks that are experiencing strong increasing and decreasing earnings, that include buy sell entry, stop-loss, take profit area price targets, and trade management information to your email inbox.
MotiveWave Trading Software Free Trial
Free Elliott Wave Training with a Purchase of the TracknTrade or MotiveWave Trading Software