Credit: Shutterstock photoIf the past few years of the stock market have taught IBD readers anything, one thing is this: You do not have to pick tiny companies or penny stocks to make a bundle on Wall Street.
[ibd-display-video id=532706 width=50 float=left autostart=true] If you would like to achieve double-digit, even triple-digit returns in the medium and long term, consider using IBD's Big Cap 20 screen as one stepladder to reach that goal.
The Big Cap 20 screen is simple. A company must have a minimum market value of $15 billion.
Average daily volume must be at least 300,000 shares. The screen also fully embraces the seven principles of IBD's CAN SLIM prescription for savvy stock picking . Big Cap 20 firms tend to show solid increases in earnings and sales (the C component and the A component in CAN SLIM). They tend to lead their industry, not lag it ( the L ).
Institutional sponsorship is high-quality and rising ( the I ), so when the market pulls back and a big-cap leaders suddenly cools off, these companies tend to find support at the 10-week or 40-week moving averages. Why? Large funds act as the "strong hands" in the market, absorbing shares from those with less conviction, and shore up the stock price.
When the market is really poor, you might not see many stocks make the Big Cap 20. Sometimes, the screen is empty.
The screen highlights many companies that break out to new highs, rise 10% or 20%, take a break, then build a new base. Rinse and repeat. So having some patience will be necessary. But it also means that multiple buy points, such as those featured in a base on base , will emerge. And in a good market, it will pay off.
By having at least a few big cap plays, you cut the risk of a big plunge in your portfolio due to some bad news. You're raising the chances you'll outperform the major equity indexes, giving your portfolio some alpha, as they say in the asset management world.
If a breakout sputters, or the market goes into a deep freeze, play good defense. Cut your losses short. That's the golden rule of investing . Get off margin and raise some cash when IBD downgrades the current outlook to "Uptrend under pressure" or "Market in correction."
Nvidia ( NVDA ) ranked No. 1 within the Big Cap 20 in IBD Weekly at the dawn of 2017 (1) . The IBD ratings were spectacular: a 99 Composite, 96 for Earnings Per Share, a 99 Relative Price Strength. At the time, its market value was nearly $72 billion.
The innovator in chip sets for hot growth industries including datacenter, artificial intelligence, and self-driving cars had already staged a big run after breaking out of a perfect cup with handle on March 16, 2016. So the decline during the first few months of 2017 was not at all surprising.
But as the weekly chart of Nvidia shows, the stock limited its sell-off to a four-week decline of 21%. That might sound like a lot, but it's actually mild and reasonable, considering the huge gains it made from the March 2016 breakout at 33.16. Plus, the correction gave the stock plenty of time to cool off, bottom out, then form a solid if slightly unorthodox 13-week cup-type base.
In the week ended May 12, 2017, the Santa Clara, Calif., firm blasted 23% higher and broke out past a 121.02 buy point on huge quarterly results (adjusted EPS up 126%, sales up 48%). Volume that week soared to 156 million shares, 110% above its 10-week average (2) . The funds were buying with size.
A new buy point of 218.77 in a cup without handle emerged in mid-January (3). Through Thursday's close, Nvidia has gained as much as 103%. New market cap: $149 billion and counting.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
