CANSLIM

A system of choosing stocks developed by William O’Neil based on research of past winners. It mainly looks for growth stocks and each of the characters in the acronym stands for a criteria of the system.

C – Current quarterly earnings per share has increased sharply from the same quarters’ earnings reported in the prior year. Make sure this is due to organic growth and not financial shenanigans.

A – Annual earnings increases over the last five years.

N – New products, management, and other new events. New highs in the stock price would be an encouraging sign.

S – Small supply and large demand for a stock creates excess demand, and an environment in which stock prices can soar.

L – Choose leaders over laggard stocks within the same industry.  A leader would be a stock that is performing strongly compared to other stocks in the industry or in the broad market.

I – Pick stocks who have institutional sponsorship by a few institutions(indicating that some firms have found it attractive, a stock may have no institutional sponsorship at all for a reason) Be wary of stocks that have a very high ownership percentage of float by institutions as a stampede to the exits due to a rumor or unfavorable news could cause the stock price to fall sharply.

M – Determining market direction by verifying the current trend.

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