Investors Business Daily (IBD)
Not really a newsletter as much as a newspaper. Just
about the most respected stock picking newspaper
available. It has been a round for over 30 years and is
based on a set of sound principals for finding winning
stocks based it's CANSLIM rules.
The CANSLIM Theory was invented by William J. O'Neil, a
self-educated investor who discovered that winning
stocks of the past all displayed similar characteristics
before they made huge price gains (breakouts). He
classified these characteristics and associated them
with the CANSLIM acronym.
Here is a summary of the CANSLIM system.
CANSLIM: The C in CANSLIM stands for "current quarterly
earnings". Most of the big winners from the past had a
large percentage increase in their most recent current
quarterly earnings compared to the same quarter in the
prior year before their breakout, or the quarter right
after their breakout. For some stocks, there was an
earnings increase of 25% while others made earnings
increases of 50% to 100% or more. Many of these winning
stocks also had increasing earnings over a few prior
quarters. The CANSLIM Theory says this is the most
important single characteristic for winning stocks.
CANSLIM: The A in CANSLIM stands for "annual earnings".
Most winning stocks from the past displayed decent
annual percentage earnings increases for the last couple
of years. It is good to look for increases of 25% or
more over the prior year.
CANSLIM: The N in CANSLIM stands for "new". For a stock
to do well, it should be on the leading edge of its
industry, thus giving investors a reason to demand its
shares. This could be in the form of a new product, a
new management, or a new 52-week high in price. A lot of
winning stocks display more than one of these "new"
characteristics.
CANSLIM: The S in CANSLIM stands for "supply and
demand". Companies are usually classified in three
different areas - large cap, mid cap and small cap. When
looking for a winning stock, it is usually better to
stick with stocks on the smaller end of the scale. They
tend to have fewer shares outstanding, which means that
buying by institutions will drive the price up quicker.
The smaller companies can also adapt better to the
changing economic environment and are usually better
innovators. Even the large companies of today once
started out small.
CANSLIM: The L in CANSLIM stands for "leader or
laggard". When looking for winning stocks, try to pick
stocks from those industry groups that are currently
performing the best. Stocks tend to move in groups,
which can add to your stocks' chances for success. Also,
look for the best stocks within leading industry groups.
The leaders within a group usually make the best gains.
It is very important to constantly review your stocks to
ensure you cut your laggards and concentrate on your
leaders.
CANSLIM: The I in CANSLIM stands for "institutional
sponsorship". As most investors know, it is the
institutions that really drive the market and individual
stocks. They can't hide their tracks when they decide to
take a position in a stock, and their buying power can
keep the price moving higher. It is smart to follow the
institutions as they have the manpower and knowledge to
delve into a company and ensure there is a reason to
buy. Individual investors can use that to their
advantage by picking stocks that have at least a certain
degree of institutional sponsorship.
CANSLIM: The M in CANSLIM stands for "market direction".
Without this one in your favor, there is not much use
trying to buy breakouts. It is extremely important to
follow the daily price and volume action of the market
and the major averages to ensure that the market's trend
is in your favor. CANSLIM looks for a rally attempt with
a confirmation day between the 4th and 10th days of a
new rally. That is the sign that it is safe to try and
enter breakouts. |
|
