While identifying the stock market's best stocks to buy and watch sounds like a monumental task, investors can take a shortcut of sorts with IBD's Composite Rating. The rating can easily identify stock market leaders, as we'll show with chipmaker Taiwan Semiconductor Manufacturing.
The IBD Composite Rating is a blend of the other five IBD stock ratings: the EPS Rating, Relative Price Strength Rating, Accumulation/Distribution Rating, SMR Rating and Industry Group Relative Strength Rating. By mixing and evaluating the data from those ratings, the Composite helps investors gauge the quality of fundamentals and chart action vs. all other stocks.
The EPS Rating measures the growth and stability of a company's earnings over the past three years, with extra weighting put on the two most recent quarters. The result is assigned a rating of 1 to 99, with 99 being best.
The RS Rating gauges a stock's price performance compared with all other publicly traded stocks over the past 12 months. The rating is set on a scale of 1 to 99, with 99 being the best possible.
The A/D Rating tracks institutional buying and selling over the past few months using price and volume data. Stocks with the greatest accumulation have A+ ratings.
The SMR Rating examines a company's sales growth, profit margins and return on equity. It features an A-to-E scale where A represents the top 20% of companies in terms of SMR scores.
The Industry Group RS Rating assesses the overall strength of a stock's industry group. It uses a similar A+ to E scale.
EPS, RS Ratings Receive Extra Weight
The EPS and RS Ratings, along with the stock's distance from its 52-week high, receive special weightings in calculating the Composite Rating. These three factors get to the heart of special growth companies. They are leading their peers and the market, plus they trade near new highs where buy opportunities could emerge.
Focus on stocks with Composite Ratings 90 or higher. Those with ratings of 95 or higher deserve special consideration. The IBD Stock Checkup lists the stocks with best Composite Ratings in their industry group, a fast way to find industry leaders. All IBD ratings can be found in the stock quotes at Investors.com and multiple other resources.
Remember, don't just buy any stock because it has a strong Composite Rating. Make sure the stock is breaking out past a proper buy point from a base formation, like a cup with handle or double bottom.
Nvidia Chipmaker Nears Buy Point
On May 10, Nvidia chipmaker Taiwan Semiconductor, better known as TSMC, staged a breakout above a 148.43 buy point in a double bottom, per IBD MarketSurge chart analysis.
Ahead of that breakout, the Composite Rating was a solid 93, which told investors it was a stock market leader to watch and study further.
Shares rallied as much as 30% above that entry in mid-July. That allowed investors to lock in gains at the 20%-25% profit-taking zone ahead of a downturn.
Now, TSMC is appearing in IBD MarketSurge's Near Pivot list. The stock is approaching a cup-with-handle's 205.63 buy point. Its Composite Rating is a near-perfect 98.
Other Best Stocks In Or Near Buy Zones
These are a handful of Growth 250 stocks that are in or near buy zones and their IBD Composite Ratings.
| Company Name | Symbol | Composite Rating |
|---|---|---|
| Klaviyo | 99 | |
| Taiwan Semiconductor | 98 | |
| Trip.com Group | 97 | |
| Alphabet | 97 | |
| Walt Disney | 94 | |
| Chipotle Mexican Grill | 93 | |
| BlackRock | 92 | |
| Burlington Stores | 91 |
Source: IBD Data as of Dec. 19
Be sure to follow Scott Lehtonen on X at @IBD_SLehtonen for more on growth stocks, the Dow Jones Industrial Average and the stock market today.
