CANSLIM is William O’Neil’s proprietary method for screening stocks to find suitable buy candidates. After years of research, O’Neil has found that the really big winners have all had very similar characteristics, and is summarized from his book How to Make Money in Stocks by the acronym CANSLIM:
C = Current quarterly earnings: The bigger the better
A = Annual earnings increases: Look for significant growth
N = New products, new management, new highs: Buying at the right time
S = Supply and Demand: Shares outstanding plus big volume demand
L = Leader or laggard: Which is your stock?
I = Institutional sponsorship: Follow the leaders
M = Market direction: How to determine it
O’Neil’s website www.investors.com has a good free tutorial section that explains CANSLIM more thoroughly. Even better, I recommend reading the book How to Make Money in Stocks at least once a year.
To scan the entire market of about 20,000 stocks for CANSLIM opportunities would be inefficient to say the least. Instead I signed up to the ‘investors.com’ service where at the click of a few buttons, it gives me access to the top 100 stocks in the market based on the CANSLIM principles, as well as other screens such as ‘the Smart Select All-Stars’, ‘Healthy Profit Margins’ and ‘Accelerating Earnings’. The website rates each and every stock and gives it a rank from 1 – 99. No 1 being the ‘least-best’ buy candidates and 99 meaning the stock is outperforming 99 percent of the market based on the CANSLIM criteria. I am personally only interested in the stocks that are ranked 97 and above. This means I only look at the top 3% of the market.
This rates stocks only according to fundamental data. Then using this data, I group the stocks selected using this data into a watchlist, and narrow this list down further by scanning their price charts and only selecting stocks that are just about ready to breakout. The actual buy and sell decisions are based on the price action on the chart and not from the fundamental characteristics.
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