The NASDAQ Dozen: Analyze a Stock in 12 Easy Steps

You’ve looked at the charts, you’ve read the reports and now it’s time to get serious. But how do you know if the stock you’ve been obsessing over is really a good buy? There is so much information to analyze. Do you need to worry about the Price-Earnings (P/E) ratio? What about everything the analysts have been saying? Is the price going up? With so much data available, many investors feel overwhelmed and lost. What you’re about to find out, however, is that you can actually conduct a thorough analysis of any stock in 12 easy steps: the NASDAQ Dozen.

The NASDAQ Dozen is not a crystal ball. It is not a guarantee of success. Rather, it is a rational, repeatable process for analyzing the most important fundamental and technical aspects of any stock.

No stock is perfect. If you look hard enough, you can always find something that is wrong with a stock. Conversely, if you look hard enough, you can always find something good about a stock. The trick is to invest in stocks that have more good qualities than bad. Here’s where the NASDAQ Dozen comes in. By looking at 12 key aspects of any stock you are interested in, you can quickly determine if the stock is one worth pursuing or one better left alone.

The NASDAQ Dozen consists of analyzing the following 12 factors:

1. 50-Day Average Volume
2. Short-Term Price Movement
3. Long-Term Price Movement
4. Revenue
5. Earnings per Share (EPS)
6. Net Income
7. Analyst Recommendations
8. 12-Month Price Target
9. Positive Earnings Surprises
10. Earnings Forecast
11. Industry Earnings
12. Industry Price-Earnings

To score the 12 factors of the NASDAQ Dozen, you need to assign each factor either a passing or a failing grade. After you have scored all 12 factors, add up the passing grades and compare them to the failing grades. And the higher the ratio, the more confident you can be investing in the stock.

For instance, you would feel more comfortable investing in a stock that had 10 passing grades and only two failing grades—a ratio of 10:2—than you would investing in a stock that only had four passing grades and eight failing grades—a ratio of 4:8.

Let’s take a look at why each of these 12 factors in the NASDAQ Dozen is important and how to score each one.

Starting on the main page at NASDAQ.com, you will see a window in the upper-left corner of the page where you can Get Up To 10 Quotes. Enter the ticker symbol for Google (GOOG) in the first blank field and click on the Summary Quotes button (see Figure 1 ).

Figure 1-NASDAQ.com Home Page