What is CANSLIM Stocks?

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  • 20 Oct 2023
What is CANSLIM Stocks?

Key Highlights

  • CAN SLIM in share market refer as an acronym developed by American William J. O'Neil. He is the forunder of Investor's Business Daily
  • It is use to identify CANSLIM stocks which are stocks with strong performance as well growth.
  • The acronyms of CAN SLIM can be elaborated as the C stands for current quaterly earnings, A stand for Annual earngs, N stand for new product, which can be service or management, S- sipply and demand, L - ledgers or laggards, I is for insitutional ownership, and letter M is for the market direction.

CANSLIM is a method where you can perform stock-screening techniques which is developt by William O'Niel. It was introduced in the 1950s, William O'Neil was a founder of an American Stock research company named Investor's Business Daily (IBD).

Its a one of the unique method which uses bth technical and fundamental analysis to find CANSLIM stocks in the Stock market. Trader can identify entry and exit point of a stock using these strategies and enahnce their trade. Its important to remember what stocks to choose for your research and

According to the CANSLIM stratey, the following term can be breakdown in the below table:

Term Meaning Explanation
CCurrent Quarterly EarningsSelect stocks with significant earnings growth in the most recent quarter. Currently quaterly earning per share(EPS) that can increase by atleast 20- 25% quaterly. EPS growth can be a strong possitive sign for user.
AAnnual Earnings GrowthLook for annual earnings growth of at least 25% or even more in the past three year of the stocks.
NNew Products, Services, ManagementChoose stocks with new products, services or management changes.
SShares SupplyPrefer stocks with reduced number of shares outstanding.
LLeader or LaggardPick industry leader stocks that outperform the market. The company must have a relatice strength of atleast 80 or higher. The relative strenght refer as a indicator which shows performance of stock relative to the share market.
IInstitutional SponsorshipLook for significant buying stock which has maximum number of institutional investors.
MMarket DirectionOnly buy stocks when the overall market is rising.

Some of the benefits of CANSLIM stocks are as follows:

Systematic Approach

CANSLIM provides a systematic checklist to pick stocks rather than just ad hoc selection. This disciplined process can lead to more consistent results.

Growth Focus

The strategy focuses heavily on earnings growth, both quarterly and annually. Earnings growth is a key driver of share price appreciation.

Identifies Market leaders

By selecting industry leader stocks that are outperforming, CANSLIM targets stocks poised to benefit most in an uptrend.

Reduced Risk

The criteria like institutional sponsorship and supply/demand for shares point to higher quality, lower risk stocks.

Stock Market Alignment

Buying stocks only during a market uptrend reduces risk and takes advantage of the prevailing bullish conditions. Depending upon the trend trader can trade using the CANSLIM stock strategy.

Backtest Your Strategy

CANSLIM is a historically backtested strategy that has outperformed broader markets over decades. It is supported by extensive research which includes fundamental & technical analysis.

Flexible Usage

Investors can apply CA SLIM in different ways—for screening, idea generation, or to evaluate stocks in a portfolio.In different stock sector you can use this strategy to obtain better result using your research & analysis.

The CANSLIM strategy relies heavily on earnings growth as a key criteria for selecting stocks from the stock exchange. However, high trailing growth rates may already be reflected in the share price and forward growth may slow down. This growth trap risk means investors could end up buying overvalued stocks without much upside potential. The focus on recent quarters' earnings data also means CANSLIM uses lagging indicators of a company's prospects. So it may fail to capture turning points in a business's future growth trajectory or miss some unexpected change in the company's performance.

Additionally, qualitative criteria like new products, management changes, and institutional sponsorship require subjective evaluation by the investor. The CANSLIM strategy does not consider critical valuation metrics, which could lead to selection of stocks with inflated prices in the stock market. The focus on market leaders can result in concentration in hot industries vulnerable to sector-specific risks. Since CAN SLIM requires determining the market's direction, poor timing of entries and exits can still lead to underperformance. Overtrading based on quarterly earnings is another risk.

Conclusion

CANSLIM stocks provides a structured, growth-oriented approach to stock picking that can potentially generate superior returns while managing risk. The strategy leverages market dynamics to identify high-potential stocks. You can also check the CANSLIM stock list online, but its better to do research or demo trade before relying on any trading strategies. You can explore Kotak Securities to know more about fundamental analysis in the stock market.

FAQS on CANSLIM

CANSLIM looks for a minimum of 25% growth in both quarterly and annual earnings per share. The higher the growth, the better the stocks for this strategy.

Yes, the criteria for new products/services, management changes, and institutional ownership involve subjective evaluation of company developments.This can lead to change in the growth of company's share price.

CANSLIM is designed to work in uptrending bull markets. It should not be used during market declines or uncertainty in the stock market which tend to indicate bear market.

No, there are no valuation criteria or calculations in CANSLIM. It relies on earnings growth to identify strong stocks.

CANSLIM is generally used for medium- to long-term investing, from weeks to months. It is not ideal for short-term trading.

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