Traders have many tools in their technical analysis arsenal, including moving averages, secondary indicators like MACD, RSI, etc. So, it’s not out of line for us to use that same strategy using comparable fundamental screening tools to confirm the quality of our IBD picks. Just remember that we are using the IBD 100 from Investors Business Daily as our base.
For the record, I reported in Parts 1 and 2 how technically savvy traders prefer to choose their bullish trades from fundamentally bullish screens. Then I addressed criteria behind the searches that would typically net a list of stocks, meeting a Cramer-like, best-of-breed profile by using the IBD 100 as resource.
I also provided a list that I processed using the three, fundamental filter criterion in their ascending order found on the IBD 100 rankings for the week of January, 18; with the latest reference prices from Friday’s close, January 15 as reported in Investors Business Daily.
Well, now its time to view those same picks through the eyes of another system. For Part-3, I have chosen Investools as a second look.
For the record, Investools.com has taught over 450,000 students to become self-directed investors. Students actually begin their education with the Investing Foundation Course, which includes the 7-Step Investing Formula™ and integrated trading tools. Their criteria is different than IBD, but no less capable, in my opinion.
Using the IBD list I already published, I researched the scores from the Investools system. I chose the F/E Score, the combination of the Financials and Estimates scores, as it is designed to give an overview of the financial health of a company.
Specifically, the Financials score looks at how the company has performed in the past by reviewing growth rates and other ratios to help investors discern whether the management of a company is operating wisely.
The Estimates score looks at what analysts are saying about the company´s future potential. If analysts like the growth potential of a company, it will be reflected by a high estimates score. Values are expressed on a scale of 1.0 to 4.0. In my opinion, I find the E more important the F, becuase it is forward looking.
I also opted to record and compare with ERG, the sum of three rankings – EPS rank, price rank and group rank – which sum is then ranked against all other companies. This allows you to use one indicator to search for stocks which are exhibiting the most momentum with respect to price, earnings, and industry rank. Numbers for this indicator range from 1 to 100.
And since group and sector is important, I also chose to record the Group Rank, which measures an industry group’s strength over six months, using the sum of the group’s relative performance, with the heaviest weighting on the most recent three months. A score of 70 or higher reveals a very strong group that has outperformed at least 70% of other industry groups in the market. A score of 30 or lower reveals a weak group that has underperformed at least 30% of all industry groups in the market.
Our IBD Test List with Investools Scores (Best in BOLD) (Second Best Underlined):
SmartHeat Inc (HEAT) F/E=3.75; E=3.5; F=4.0; ERG=N/A; GRnk=91
Ctrip.com ADR (CTRP) F/E=3.25; E=3.5; F=3.0; ERG=77.4; GRnk=63
China Automotive (CAAS) F/E=3.50; E=3.25; F=3.75; ERG=90.5; GRnk=84
Priceline.com (PCLN) F/E=3.25; E=3.25; F=3.25; ERG=70; GRnk=60
Baidu Inc (BIDU) F/E=3.50; E=3.25; F=3.75; ERG=78.9; GRnk=60
Cognizant Tech A (CTSH) F/E=3.38; E=3.50; F=3.25; ERG=74.1; GRnk=54
Intuitive Surgical (ISRG) F/E=3.25; E=3.25; F=3.25; ERG=79.8; GRnk=70
Longtop Financial (LFT) F/E=3.38; E=3.25; F=3.50; ERG=60.4; GRnk=54
MasterCard Cl A (MA) F/E=3.00; E=3.25; F=2.75; ERG=68.7; GRnk=87
Apple Inc (APPL) F/E=3.38; E=3.25; F=3.50; ERG=63.4; GRnk=52
Chna Sky One Medical (CSKI) F/E=N/A; E=N/A; F=3.75; ERG=63.7; GRnk=38
A-Power Energy Gen (APWR) F/E=2.50; E=2.75; F=2.25; ERG=54.3; GRnk=22
VSE Corp (VSEC) F/E=N/A; E=N/A; F=3.50; ERG=65.9; GRnk=28
Lumber Liquidators (LLL) F/E=3.15; E=3.00; F=3.25; ERG=67; GRnk=74
Legal Disclaimer: Again, this does NOT mean you should go out and buy these stocks This search list is part of an educational and research series only.
Comparing our test list again Investools reveals a few differences. Not even AAPL would meet the Investools criteria on Group Rank alone, but I underlined it due to F/E score; same for MA. APWR doesn’t even meet the minimal requirement of F/E >3.25.
So, the stocks that meet both IBD criteria, our selected IBD criteria and Investools criteria are shown in bold.
If you have another sytem to check out, make a comment here. Otherwise, next on the agenda will be to compare to another system like VectorVest. Stay tuned.