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Rock 2: Focus on stocks with big earnings and new or innovation technology

Big and accelerating earnings are the #1 factor in choosing a stock.
This is what gets the attention of the fund managers, at least those that focus on growth stocks.

See the checklist here (again)
Looking for strong ratings, EPS growth of > 25% in recent quarters and last 3 years. Strong return on equity, sales growth of 20-25% in last Q. Top stocks in the top groups, with new or innovative products.

Remember, this are minimum requirements, they point out that in the 2 quarters prior to Google shooting up, its EPS growth was 155% and 143%, the stock price then climbed 558% in 3 years.

The rankings are provided by IBD and compare all the stocks in their database to create the relative rankings. So an EPS rating/ranking of 99 means it is better than 99% of the stocks they look at.

Don’t ignore a stock because just you have not heard of it.
I used to have this bias, I mean how good could it be if I have not heard of it.

New Products, Service or Management are usually present in the greatest stocks. The internet revolution, biotech, smart phones, cloud computing, Eisner becomes CEO at Disney and completely changes the company.

New Price High as they say Stocks hitting new lows tend to go lower, and stocks hitting new highs, tend to go higher David Gardner recently quoted this in an RBI podcast. He says there are plenty of things he disagrees with in O’Neil’s system, but he does hold this to be true. David says he never really adds to his losers, but he rarely sells them either.

Focus on the top rated stocks in the top rated industries Look for the #1 or #2 stock in the Group and look for them to be in the top 40-50 Groups (out of 197)

They claim their data show that about 49% of the stock movement is due to the movement of the group (37%) and the overall sector that group is in (12%) and that’s why they emphasize that on the checklist. They also point out there are some big exceptions so if all the other criteria looks great, you can discount it being in a weaker group.
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