What Is
CANSLIM?
by
TMF Bogey
CANSLIM is the investment philosophy/methodology espoused by William
J. O'Neil in his best selling book
How
to Make Money in Stocks. Each letter in the acronym CANSLIM stands
for one of the chief characteristics of his philosophy. They are broken down
below.
C = Current Quarterly Earnings Per Share
O'Neil contends that one characteristic of all great growth stocks is the
ability of the company in question to grow earnings at an accelerating pace.
He looks for stocks that have grown earnings by at least 18 to 20% in the
current quarter versus the same quarter a year ago.
A = Annual Earnings Increases
O'Neil looks for stocks that have grown their earnings in each of the past
five years by at least 15 to 50%.
N = New Products, New Management, New Highs
Look for stocks that have exciting new products that will change the face
of the industry and new management that will bring exciting new ideas and
experience to the table. O'Neil also counsels buying stocks that are at or
hitting new 52-week highs in price "after undergoing a price correction or
consolidation".
S = Supply and Demand
O'Neil goes on to explain that companies with smaller numbers of shares
outstanding usually do better than those with large numbers of shares
outstanding. He says that you should look for companies where insiders own
significant portions of the stock and where the company is buying its stock
in the open market.
L = Leader or Laggard?
Investor's Business Daily supplies statistical information everyday on Relative
Strength and Earnings Rank. These statistics measure how powerfully a company's
earnings are growing relative to the rest of the companies out there. It
also measures how strong the stock price has been relative to all other stocks.
O'Neil argues that stocks exhibiting strong relative strength and earnings
should be the only stocks considered for purchase.
I = Institutional Sponsorship
O'Neil looks for companies that have some institutional ownership, but not
too much. He argues that mutual fund companies are the ones that will discover
these stocks and pour billions of dollars into them. He wants you to find
them first, before the stock prices go up!
M = Market Direction
By following the market (general market as measured by the S&P 500, Nasdaq,
Dow Jones, etc.), O'Neil argues that you can decipher the trend of the market.
He counsels against buying stocks in a down market. Buying in an uptrending
market is the best way to buy. We won't go into all the ways O'Neil describes
to predict the motion of the market -- you'll have to buy the book for that.
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