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Want To Find Big Winners? Study The Past Champions

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There is really nothing new under the sun.

If you want to know what would likely be the market's next round of big market winners, just look at the traits of the biggest stock market gainers of the past.

"The first step in learning how to pick big stock market winners is to examine leaders of the past, like those you're about to see, to learn the characteristics of the most successful stocks," wrote IBD founder William O'Neil in ".

Big winners tend to have strong fundamentals and technicals. They are the ones being bought up by institutions. This is essentially the basis of the investing method.

Strong earnings growth is vital to a market winner. After all, when you buy a stock, you're in effect buying a piece of the company. Who would want to be an owner if a company is not making more money

A company should show quarterly earnings growth of at least 25% in the latest quarters; the higher, the better. It's not unusual to see some firms deliver triple-digit growth.

Besides strong quarterly earnings growth, insist on seeing robust annual growth for at least three years. That way, you'll know that the company is not just a flash in the pan.

While profit growth is key, investors also need to see solid on a quarterly and annual basis. Earnings can be manipulated. Sales are much harder to fudge.

Big market winners tend to be companies that are industry leaders and offer breakthrough products and services. Apple (AAPL) puts out electronic gizmos that people line up for hours to buy.

Strong chart action is another key trait of past winners. The huge winners such as America Online (AOL), Dell (DELL) and Apple broke out of price patterns such as the , or before making monster runs.

Professional buying is also key: It's major funds that have enough firepower to significantly move a stock.

Apple's earnings grew 52% to 122% in the four quarters before it cleared a cup-with-handle base at 427.85 in the week ended Jan. 20. 1 Demand for shares really picked up the next week, and the stock bolted 50% 2 before pulling back to its 10-week line.

Quiz: How well do you know India's economy?

Question 1

Which of these products is India the world's largest producer of?

Poll Choice Options
  • Wheat
  • Rice
  • Milk
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