How To Buy Stocks (2024)

In earlier lessons, we went over The IBD Methodology, stock market timing and how to track changing stock market trends. The concepts and rules covered in those sections are essential to understanding how to buy stocks.

↑X

In addition to those strategies, two key factors come into play when searching forthe best stocks to buy: what stocks to buy and when to buy them.

This section addresses the first question by looking at stock ratings and stock lists that help you quickly find and evaluate potential stock picks. Here you'll learn to analyze both fundamentals (i.e., earnings and other company-related criteria) and technicals (i.e., share price, volume and other stock-related factors). The stock ratings in Stock Checkup instantly diagnose both, That provides a comprehensive look at the health of the company, its stock and the industry group, as well as the general market.

The next section focuses on Stock Charts And Technical Analysis. It addresses the question of when to buy stocks by pinpointing the optimal time to invest with the lowest risk and the highest potential.

Stock Lists: Find The Best Stocks To Watch

With thousands of stocks to choose from, finding the best stocks to buy and watch can be intimidating. IBD Stock Lists help streamline your research.

These unbiased, computer-generated lists are based on The IBD Metholodogy, which identifies the telltale traits most top-performing stocks display early in their big price moves. Lists like the IBD 50, IBD Sector Leaders, IBD Big Cap 20 and IPO Leaders alert you to which stocks are most strongly showing those same characteristics right now.

When To Buy Stocks: See Stocks In Or Near A New Buy Zone

With these premium IBD Stock Lists, you'll get highlights of stocks in or near a proper buy zone.

With IBD's Take — inside the chart for each stock on these top stock lists — you'll find a short, one-line analysis of each stock. IBD's Take points out any chart patterns and current or potential buy points or buy zones that stock is showing.

Use the IBD Stock Screener to pull up these charts with the analysis highlighting these potentially actionable stocks. You can also use these tool to build custom stock screens based these stock lists, stock ratings and your own stock-picking criteria.

Here's a look at what each of the main IBD Stock Lists offers. Scroll down to see links to additional screens.

Create Custom Stock Screens To Find The Best Stocks To Buy And Watch

IBD 50

IBD's flagship screen of leading growth stocks gives you 50 companies showing strong relative price strength and top-notch fundamentals. Before you decide what stocks to buy, always check out these new and innovative stocks that historically far outperform the S&P 500.

You can trade the IBD 50 in just one transaction with Innovator Capital Management's IBD 50 ETF (FFTY).

IBD Sector Leaders

Our most stringent and powerful screen, IBD Sector Leaders highlights the best stocks in the 33 sectors covering over 8,000 publicly traded stocks. All IBD Sector Leaders show outstanding earnings and sales growth in recent quarters. They're also strong across many other fundamental and price-performance metrics.

IBD Big Cap 20

This daily screen uncovers top-rated, large-cap growth stocks to watch. These well-established large caps have market capitalization of over $15 billion and can deliver outsize gains without the volatility of smaller growth stocks.

IPO Leaders

Looking for the best IPOs to buy and watch? Initial public offerings, or IPOs, are typically in their early stages of growth. The IPO Leaders list highlights the newest companies most strongly showing the telltale traits the telltaletraits of potential big winners.

Stock Spotlight

Stock Spotlight highlights companies with strong earnings and sales growth along with high Composite Ratings and/or stocks with solid fundamentals that are near new price highs and above their 50-day moving averages.

IBD Long-Term Leaders

Unlike the other stock lists shown here, IBD Long-Term Leaders is not computer-generated. It's a curated list focused on companies with a proven track record of stable earnings growth and long-term relative strength. Like all stocks, these long-term leaders are impacted by changing stock market trends in the indexes. But these companies have a history of weathering market corrections and performing well in good times to produce exceptional long-term gains.

Stock Ratings: Evaluate Potential Stock Picks

Does your stock earn an A+ or a D-? Find out instantly with stock ratings in IBD Stock Checkup.

Based on The IBD Methodology, these ratings provide both fundamental and technical analysis, as well scores for the company's industry group and the overall market trend.

Once in Stock Checkup, be sure to scroll through the entire Stock Checklist to see the full scope of the detailed analysis.

It's All Relative

With the exception of the Accumulation/Distribution Rating, each of the main IBD stock ratings is relative. They show how your stock compares to all other stocks on the market, instantly separating the leaders from the laggards.

For example, the Earnings-Per-Share (EPS) Rating goes from 1 (worst) to 99 (best). A 95 rating instantly tells you the company is outperforming 95% of all other stocks in terms of both current quarterly and annual earnings growth. The Composite Rating combines both fundamental and technical analysis to show overall strength, with a 99% Composite Rating meaning the company is in the top 1% of all stocks.

So in one glance at these stock ratings, you can see how your stock compares to all others to improve your potential stock picks.

Below is a quick overview of each rating.

IBD Composite Rating

This gives you an overall score for the stock by combining all other stock ratings into one, with more weight on the EPS and Relative Strength (RS) Ratings.

Range: 1 (worst) to 99 (best)

• A 99 rating means the stock is outperforming 99% of all stocks in terms of overall fundamental and technical strength.

What To Look For: 95 or higher

• The best stocks will often rate 98 or 99 at the time they launch a big price run.

Earnings Per Share (EPS) Rating

The EPS Rating measures both cuurrent quarterly earnings growth and annual earnings growth. It then compares the company's performance to that of all other stocks.

Range: 1 (worst) to 99 (best)

• A 99 rating means the stock is outperforming 99% of all stocks in terms of current quarterly and annual earnings-per-share growth.

What To Look For: 80 or higher

• The best stocks will often rate 98 or 99 at the time they launch a big price run.

Relative Strength (RS) Rating

You want to focus on the best stocks, those clearly outperforming the rest of the pack. The Relative Strength (RS) Rating is one more way to separate the cream from the rest of the crop. The RS Rating tracks a stock's share price performance over the last 52 weeks, and then compares the result to that of all other stocks. The rating shows clearly if the stock is a market leader or laggard in terms of price performance.

Tip: Be sure not to confuse the RS Rating with the relative strength line. The RS line compares the price performance of the stock against that of the S&P 500, which serves as a bellwether for the general market. So a rising RS line shows the stock is a true leader, outperforming the overall market.

Range: 1 (worst) to 99 (best)

• A 99 rating means the stock is outperforming 99% of all stocks in terms of relative share price performance over the last 52 weeks.

What To Look For: 80 or higher

• The best stocks will often rate over 90 at the time they launch a big price run.

Accumulation/Distribution Rating

Mutual funds and other large investors account for the bulk of all market trading. So it's crucial to track what these institutional investors are buying and selling. The Accumulation/Distribution Rating helps you do that by tracking large-volume buying and selling over the last 13 weeks.

Range: A+ (best) to E (worst)

• An A+ rating shows that institutional investors are aggressively buying that stock, while an E indicates heavy selling.

What To Look For: A, B, C or D rating (the higher the better)

• Like all IBD stock ratings, this score can change quickly. To gauge demand for a stock among large investors, also check price and volume action in the stock chart.

SMR Rating

Earnings growth is a key factor that drives stocks, and the SMR Rating tracks the key ingredients that drive earnings: sales growth, profit margins and return on equity.

Range: A+ (best) to E (worst)

• While tracking technical analysis and market trends is crucial, also get to know the story behind the stock, including a stock's revenue growth and the industry trends behind it.

What To Look For: A or B

• A higher rating shows strength in a company's fundamentals by gauging sales growth over the past three quarters, pretax and after-tax profit margins and ROE, which shows how efficiently a company uses its capital.

Buying Checklist: Improve Your Stock Picks

To learn and apply a sound strategy for how to buy stocks, follow a buying checklist that brings together the stock ratings covered above, as well as the three key factors for stock investing outlined in a prior lesson.

Making sure that your potential stock picks meet or exceed these benchmarks will help keep the odds of success in your favor. The checklist will also help streamline your process for how to invest in stocks.

Use This Interactive Buying Checklist To Improve Your Stock Picks

Learn More About How To Invest In Stocks

Use the links below to learn more about stock investing and how to invest in stocks using IBD and The IBD Methodology — and discover how to stay both profitable and protected.