How to pick right stocks for the best returns: Use CANSLIM method
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How to pick the right stocks using CANSLIM technique
Developed by William O'Neil, the founder of Investor's Business Daily (IBD), CANSLIM is a well-known method for selecting multi-bagger stocks. This strategy, combining technical and fundamental analysis, has been widely studied and praised for its effectiveness in identifying promising growth stocks.
The acronym CANSLIM represents seven key criteria investors should consider when evaluating stocks. All you need to know about CANSLIM.
The acronym CANSLIM represents seven key criteria investors should consider when evaluating stocks. All you need to know about CANSLIM.
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C for current quarterly earnings per share (C)
The letter 'C' stands for ‘current quarterly earnings per share’ of a company.
Investors should compare a company's current quarterly earnings to its earnings from the same quarter last year. A higher percentage increase indicates better financial health. Aim for at least 20% growth.
Investors should compare a company's current quarterly earnings to its earnings from the same quarter last year. A higher percentage increase indicates better financial health. Aim for at least 20% growth.
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A for annual earnings growth (A)
The letter ‘A’ stands for ‘annual earnings growth’. When evaluating companies using CANSLIM, focus on those with strong annual earnings growth. A 20-25% increase over the past 3-5 years is a positive indicator.
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N for new product, service, management, or events (N)
The letter ‘N’ stands for ‘new product, service, management, or events’. Look for companies that are actively involved in innovation and development. New offerings or positive news can lead to significant stock price appreciation, while a lack of progress may result in stagnation.
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S for supply (S)
The letter ‘S’ stands for ‘supply’. A company's stock should be in high demand but limited supply. This scarcity can drive up prices. Companies that buy back their shares can create artificial scarcity and increase demand. Investors should look for companies with limited stock availability and strong demand.
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L for leading (L)
The letter ‘L’ stands for ‘leading.’ According to CANSLIM, it's beneficial to invest in industry leaders. Use the Relative Strength Index (RSI) to identify these companies.
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I for institutional sponsorship (I)
The letter ‘I’ stands for ‘institutional sponsorship’. Institutional ownership is a positive indicator. Research a company's institutional shareholding before investing. A recent increase in institutional ownership is favorable.
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M for market direction (M)
The letter ‘M’ stands for ‘market direction’. Many stocks follow the market's general trend. Study broad market indices to confirm an uptrend before making investment decisions.