When I first started investing, outside of a few books, there was very limited information on how to pick winning stocks. Today, things are radically different. There is a tremendous number of stock screeners, advice gurus, and stock rating services. But the trick is to find one that works...
Personally, I utilize nearly every credible resource available, including self-developed screening criteria to pick winning stocks. When I do use a stock rating service, I like to know how it works. In other words, I want to understand the secret sauce behind the stock picks.
One of the most popular stock rating services is TheStreet.com's TheStreet Ratings, which specializes in providing winning stock picks for investors. If you're already familiar with TheStreet Ratings, you may have wondered just what its secret is.
Where Did This Service Come From?
Founded in 1996 by stock market guru Jim Cramer and Martin Perez, TheStreet.com's popularity grew quickly. After early success, the company went public in 1999. It soon expanded into a group of websites through an acquisition campaign.
Today, TheStreet is a respected source of stock market information used by investors at every level.
TheStreet Ratings service is a subsidiary of TheStreet.com and is separate and distinct from the editorial department that publishes commentary and stock market analysis.
Its system is designed to forecast a stock's total return potential over the coming year. Unlike many stock rating services, it includes not only price in the projection but also dividends.
The ratings fall into three straightforward and actionable categories: buy, hold, or sell. Furthermore, each group is clarified with a letter rating system, with buy being labeled A+ through B -, hold from C+ to C-, and sell from D+ to F.
The categories are not presented in a vacuum, but rather against a universal benchmark of the equity market and interest rates. Interestingly, the model takes more into consideration than just quantitative factors by also incorporating subjective judgments.
TheStreet Ratings considers subjective measurements like expected stock market returns, future interest rates forecasts, the consensus industry outlook, and forecasted company earnings. Objective parts analyze volatility of past operating revenues, financial strength, and the company's cash flows.
It also looks at risk/reward factors when placing a rating. Risk/reward considers the inherent volatility of a stock and compares it to the possible downside.
3 Top Stocks From TheStreet Ratings
1. Pfizer (NYSE: PFE)
This large biopharmaceutical company is one of TheStreet's top rated stocks. Earning an A rating in the buy category, Pfizer has high potential as a long-term investment.
Despite missing fourth-quarter earnings estimates and forecasting sales below projections, the share price is flirting with a 52-week high.
Investors love the company's accelerated share buyback program that works to ensure growth in EPS. Most recently, Citigroup (NYSE: C) has agreed to buy back $5 billion of shares, a plan that will settle before the third quarter.
Action To Take: Pfizer is set up as an ideal breakout play. Enter long on an upside breakout of $34.75 per share. My target is $40.00 and initial stops are suggested at $32.43 per share.
2. Raytheon (NYSE: RTN)
This government contractor, which earned an A- rank from TheStreet Ratings, designs, develops, manufactures, integrates, and supports technological products, services, and solutions. Its customers are governmental and commercial entities in the United States and internationally.
Jim Cramer calls this stock "terrific," largely because it has maintained its price better than the other defense contractors.
Action To Take: Shares have just bounced off the 50-day simple moving average, setting up a powerful technical buy signal. Buy now close to $152. Our target is $173.00, and initial stops are suggested at $145.32 per share.
3. Agilent Technologies (NYSE: A)
This $14.6 billion market cap healthcare company specializes in bio-analytical and electronic measurement solutions to the communications, electronics, life sciences, and chemical analysis industries worldwide. It earned a solid B on TheStreet Ratings.
Its shares have soared 23% in the last month. TheStreet calls Agilent "...an island of calm in a chaotic healthcare sector." Even as changes take place in the U.S. health care system, Agilent should continue to outperform.
Action To Take: Solid technical support has formed near the highs at $53.00 per share. Buy now close to $53.00 with a $62.00 per share target price. $49.33 is the suggested initial stop level.